South Korean Encryption Industry Research Report: Enrichment demand drives market development, with the highest proportion of female users globally

Introduction

The cryptocurrency market in South Korea may be the most active and mature, and almost everyone in South Korea knows BTC, and people are more friendly to emerging projects. Especially, the enthusiasm of young people for cryptocurrencies far exceeds that of the older generation. At the same time, due to South Korea’s market economy environment, young people’s FOMO sentiment is stronger.

1. Macro-economic Indicators and Current Situation

South Korea is a high-income developed country and the member country with the highest level of industrialization in the OECD. Korean brands such as LG Electronics and Samsung are renowned internationally and have earned South Korea a reputation for their high-quality electronic products and other manufactured goods. South Korea became a member of the OECD in 1996.

Geographic Location and Population Size

South Korea, also known as the Republic of Korea (ROK), is located in the southern part of the Korean Peninsula, extending about 1,100 kilometers from the Asian mainland. It borders North Korea along the Korean Demilitarized Zone, with the Yellow Sea forming its western boundary and the Sea of Japan defining its eastern boundary. South Korea (including all its islands) is situated between latitude 33° and 39° North and longitude 124° and 130° East, with a total area of 100,410 square kilometers (38,768.52 square miles). The country claims itself as the sole legitimate government of the entire peninsula and neighboring islands.

It is estimated that the population of South Korea will be about 51.7 million in 2022, but South Korea’s birth rate became the lowest in the world in 2009. It is the country with the largest decline in working-age population among OECD countries. It is estimated that by 2025, the proportion of people aged 65 and above will exceed 20%, and by 2050 it will approach 45%.

In addition, South Korea is known for its population density, which is estimated to be 514.6 people per square kilometer in 2022, more than 10 times the global average. Apart from microstates and city-states, it is the third most densely populated country in the world. South Korea is also one of the most homogeneous societies in terms of racial structure, with ethnic Koreans accounting for about 96% of the total population. Due to many immigrants being ethnic Koreans themselves, the statistics do not record race, making it difficult to estimate accurate numbers.

Economic Structure and Characteristics

South Korea is a mixed economic system with major industries including textiles, steel, automobile manufacturing, shipbuilding, and electronics. Over the past few decades, its rapid rise has been mainly attributed to the export of electronic products and telecommunications equipment, which have earned the country a reputation as a top global manufacturing and innovation hub.

The country has important or even dominant positions in many of the world’s major industries, such as nuclear power, consumer electronics and biotechnology, and is committed to becoming a major participant in other areas such as smart grid technology, Internet of Things (IoT) and robotics technology.

South Korea’s economy is heavily reliant on international trade. In 2014, South Korea was the world’s fifth largest exporter and the seventh largest importer. However, against the backdrop of tightening interest rates and weakening external demand, the recent economic growth is expected to be moderate but slowing. Especially, South Korea’s major export product, semiconductors, dropped by 41% in April 2023. The International Monetary Fund forecasts a real GDP growth rate of 1.5% in 2023.

As of 2023, South Korea has 82 chaebols. These business groups are usually family-run, with total assets exceeding 50 trillion Korean won (36.90 billion US dollars). Chaebols in South Korea are large industrial conglomerates operated and controlled by individuals or families. Samsung, with a market capitalization of over 375 billion US dollars, is one of the most valuable chaebols, larger than Qatar’s economy. According to Statista.com, as of May 2023, the top five business groups (also known as chaebols) - Samsung, SK Group, Hyundai Motor Company, LG, and POSCO - accounted for nearly 53% of the total revenue of South Korea’s 82 major business groups.

South Korea GDP ranking

The South Korean economy is one of the world’s largest and most advanced economies, ranking 13th in nominal GDP and 14th in purchasing power parity GDP. According to World Bank data, South Korea’s gross domestic product (GDP) in 2022 was USD 1.67392 trillion. South Korea’s GDP accounts for 0.72% of the world economy.

Inflation Rate Data

In April 2024, South Korea’s annual inflation rate slowed to 2.9%, down slightly from last month’s 3.1% and slightly lower than market expectations of 3%. This is the lowest reading since January, as the cost of food and non-alcoholic beverages (5.9% vs. 6.7% in March) and restaurants and hotels (3% vs. 3.4%) rose at a slower pace.

At the same time, the cost of housing, electricity, gas, and water rose at the same speed (1.8%), while the price increase rate was faster (2.9% vs 2.8%). On a monthly basis, inflation remained stagnant after a slight rise of 0.1% last month, lower than the market’s expected 0.2% increase.

South Korea’s legal currency

The South Korean won is the official currency of South Korea. Its currency code is KRW, and its symbol is ₩. The won has a conversion factor of six significant digits. It is a legal tender. According to research firm Kaiko data, in the first quarter of 2024, the won became the main currency for global cryptocurrency trading, with a cumulative trading volume of $456 billion, reflecting South Korea’s growing speculative interest in high-risk crypto assets.

2. Current Situation and Characteristics of the Encryption Market

High User Proportion

According to the semi-annual report on encryption asset business released by the Korea Financial Intelligence Unit (KOFIU), as of the second half of 2023, the number of active users of registered encryption asset exchanges in Korea has increased by 390,000, with over 6.4 million (11% of the population) in Korea.

High Adoption Rate

Driven by a tech-savvy population and strong interest in financial innovation, cryptocurrency ownership and adoption in South Korea have seen significant and continuous growth. The majority of these investors are primarily engaged in investment activities centered around centralized exchanges, which has significantly increased the influence of centralized exchanges in the South Korean cryptocurrency market. At the same time, there has been a substantial increase in cryptocurrency ownership in South Korea, particularly among individuals in their 40s and 50s, as well as significant adoption among young investors in their 20s and 30s.

Large trading volume

In addition, with the advent of a new cycle and the rise in BTC prices, the cryptocurrency trading frenzy in South Korea has once again surged. In March 2024, the trading volume of domestic cryptocurrency exchanges in South Korea reached a record-breaking 11.8 trillion Korean won (approximately 9 billion US dollars), exceeding the trading volume of the Korean stock market at that time, which was 11.47 trillion Korean won (approximately 8.7 billion US dollars)

3. Encryption of User Features

According to recent data, the cryptocurrency ownership in South Korea has significantly increased. This includes a diverse demographic range, with significant adoption among individuals in their 40s and 50s, as well as young investors in their 20s and 30s. According to Forkast’s report, 31% of Korean investors are in their 30s, 27% in their 40s, and a quarter in their 20s.

The percentage of female users exceeds that of other regional markets

According to Kucoin’s 2023 survey:

26% of adult internet users in South Korea aged 18 to 60 have invested in cryptocurrency in the past six months;

Among the entire encryption investor population, the participation rate of men (56%) is higher than that of women (44%);

Investment by young women aged 18-30 (Generation Z) has significantly increased, accounting for 67% of female cryptocurrency investors;

This trend suggests that women, especially those of the Z generation, may play a more important role in future cryptocurrency investments.

Generation Z tends to prefer getting rich overnight

The survey also analyzed the different motivations for people to invest in cryptocurrencies:

The motivation of the elderly population is long-term wealth accumulation (47%).

Generation X is more inclined to long-term investment (55%) and portfolio diversification (38%);

Z tends to make quick gains, with 38% aiming to “get rich overnight”, compared to the overall average of 30%;

Young investors are mainly driven by the FOMO emotion, which is reflected in their higher trading frequency. 64% of Gen Z investors trade more than once a week, compared to 48% for Gen Y and 42% for Gen X.

In addition, Z era shows a higher interest (27%) in the entertainment value of encrypted investment, considering it as an interesting activity that is not just about financial returns.

4. The current situation of CEX in South Korea

South Korea is one of the world’s largest and most active cryptocurrency markets. According to CoinGecko, as of May 14, 2024, its five licensed exchanges Upbit, Bithumb, Coinone, Korbit, and Gopax processed over $2 billion worth of cryptocurrency transactions.

Upbit

Upbit is the largest exchange in South Korea, dominating the market with over 80% of the trading volume (1.5 billion USD as of May 17, 2024), making it one of the top five cryptocurrency exchanges globally. It also operates in Singapore, Thailand, and Indonesia, focusing on the major crypto markets in Southeast Asia.

Bithumb

Bithumb was established in 2014 and has since become one of the largest and most influential cryptocurrency exchanges in South Korea, headquartered in Seoul. According to Coingecko, as of May 14, 2024, it ranks second with a daily trading volume of 411 million USD.

Other CEX

According to Coingecko’s data: As of May 17, 2024, the market share of other CEXs is very small compared to Upbit and Bithumb, as their daily trading volumes are 5 million USD (Korbit) and 2 million USD (Gopax) and 29 million (Coinone).

5. Web3 Projects in South Korea

ZEAT

Zeat is a gaming social platform designed to connect players, facilitate finding gaming partners, chatting with friends, and sharing content. It supports clans with features such as sparse matches, championships, and tasks. ZEAT aims to integrate Web3 elements such as NFTs, SocialFi, and tokens to enhance the gaming experience. The platform’s AI recommendation system helps players discover like-minded individuals and build a community.

CXT.Tax

CXT.Tax, also known as CryptoTax, is a platform designed to effectively manage cryptocurrency assets and taxes. It provides features such as transaction data aggregation for various trading platforms, real-time asset monitoring, and the latest news and disclosures. Users can preview and report taxes, estimate future tax liabilities, and receive notifications about important updates regarding their assets. CryptoTax aims to simplify digital asset management and tax compliance for investors.

DSRV

DSRV is a blockchain infrastructure company based in Seoul, South Korea. It provides a range of services including node operation, staking, and blockchain development tools. DSRV supports over 40 major blockchain networks and operates over 4000 nodes. The company also offers products such as Welldone Studio, an integrated development tool for multi-chain environments, and All That Node, a comprehensive multi-chain development suite. DSRV aims to simplify blockchain access and promote sustainable growth within the industry.

Hyperithm

Hyperithm is a digital asset management company headquartered in Tokyo and Seoul, specializing in quantitative trading and venture capital. They provide institutional-level services in the field of digital assets by utilizing advanced trading strategies and investment expertise.

KODA

Korea Digital Asset (KODA) announced on February 22, 2023, that its custodied cryptocurrency assets had expanded by nearly 248% in the second half of 2023, funded by KB Kookmin Bank, the largest retail bank in South Korea, Haechi Labs, the largest institutional cryptocurrency custody service company in South Korea funded by the largest retail bank in South Korea, and the 2020 South Korea VC fund hash.

6. South Korean encryption venture capital

Lecca Ventures

Lecca Ventures is a venture capital firm based in South Korea, focusing on the Web3 and cryptocurrency fields. They specialize in investing in community-driven startups, particularly those led by visionary founders. Lecca Ventures takes a hands-on approach, providing not only capital but also actively participating in the development and expansion of their portfolio companies.

Their investment strategy emphasizes quality over quantity, aiming to support startups that provide unique and innovative solutions in the Web3 space. Their portfolio includes companies such as Airstack, Alloyx, Nibiru, Shield, Anima, and Mission ate Cash, which are known for their contributions to the encryption industry.

Hashed

Hashed is a well-known blockchain investment company and incubator based in Seoul, with offices in Silicon Valley. The company focuses on supporting and investing in innovative blockchain projects and Web3 startups. Founded by Simon Kim, Hashed is committed to building a decentralized future by supporting visionary entrepreneurs and providing comprehensive support for its portfolio companies. Hashed plays a significant role in the global blockchain ecosystem, hosting events such as Korea Blockchain Week to promote industry-wide community and collaboration.

7. Regulation of the Cryptocurrency Market in South Korea

South Korea has established a comprehensive regulatory framework for cryptocurrency, aiming to ensure investor protection and market integrity. Key components of this framework include:

Basic Law on Digital Assets

This upcoming legislation aims to provide a structured approach to regulating virtual assets. It includes regulatory provisions for Virtual Asset Service Providers (VASPs), standards for the issuance and listing of cryptocurrencies, and disclosure requirements to prevent unfair trading practices.

Anti-Money Laundering (AML) and Compliance

The Financial Intelligence Unit (FIU) is strengthening its scrutiny of cryptocurrency exchanges. FIU’s strategy includes rigorous inspections and enforcement of strict regulatory standards to curb illegal activities such as money laundering and corruption. Exchanges must obtain real-name verification services and segregate user funds from company funds.

Investor Protection Measures

After notable events such as the collapse of Terra-LUNA, regulatory focus has shifted to strengthening investor protection. This includes stricter control over token issuance and listings, as well as mandatory disclosure for senior public officials to prevent conflicts of interest.

Global Consistency Standard

South Korea’s regulatory efforts are in line with global standards, such as those set by the Financial Action Task Force (FATF). This ensures that the country’s regulations remain consistent with international best practices, enhancing the reliability and security of its digital asset market. These measures aim to create a safer and more transparent environment for cryptocurrency transactions in South Korea, balancing the need for innovation with the necessity of protecting investors and maintaining market stability.

8. Tax Policies in South Korea

South Korea’s tax policy on cryptocurrencies is evolving, reflecting the government’s efforts to balance regulation and market growth. Initially, South Korea planned to impose a 20% tax on cryptocurrency gains exceeding 2.5 million Korean won (approximately 2300 USD) starting from 2022. However, due to industry opposition and legislative changes, this has faced several delays. As of now, the implementation of this tax has been postponed until January 2025, applicable to cryptocurrency trading income, and will require investors to report their earnings for taxation. In addition, the ruling People Power Party has proposed further delaying the establishment of a comprehensive regulatory framework, potentially pushing the effective date to 2027.

Tax regulations classify cryptocurrency gains as “miscellaneous income”, and any non-sale transfer of crypto assets, such as gifts or inheritance, is subject to statutory gift and inheritance tax rates, which can be as high as 50%. The South Korean government is also focused on increasing transparency and combating illegal activities in the crypto market, requiring exchanges to share trading records and mandating senior public officials to disclose their cryptocurrency holdings starting from 2024.

In South Korea, the capital gains tax varies depending on the type of assets and whether the seller is a resident or non-resident;

Non-residents need to pay capital gains tax on income from Korea, with rates and rules generally similar to residents;

9. Summary

As a member of the G20 and with a strong economy supported by companies such as Samsung and Hyundai, South Korea plays an important role in the global economic landscape. At the same time, South Korea is a market with a highly homogeneous culture. Without a genuine Korean team operating within the country, it is difficult for a team to enter the Korean market.

On the other hand, the financial system in South Korea has a very high level of trust, which also leads to a lack of enthusiasm among Korean users for decentralized self-custody and DeFi. However, due to the FOMO sentiment of investment, preservation, and getting rich quick, the Korean cryptocurrency market continues to perform well, standing out in the global cryptocurrency market, especially with the widespread adoption by licensed cryptocurrency exchanges and users.

By 2024, South Korea’s cryptocurrency market has indeed become a key player in the global cryptocurrency field, with a rapidly developing regulatory environment, strengthened government supervision, significant market activities, high market participation, and strict enforcement measures. With the continuous development of the industry, South Korea may play a more important role in the global crypto market.

Note: All the above views are for reference only and should not be taken as investment advice. If you have any objections, please feel free to contact us for correction.