In the last three years, Blockchain technology and cryptocurrencies swept South Korea by storm. A terrifying economic landscape for South Korean millennials, ultra-high internet speeds, digital culture and tech-savviness have all factored into the exploding petri dish that is the South Korean blockchain scene. During the great bull run of 2017, Crypto-related assets became so popular that buyers on Korean exchanges were willing to pay a roughly 32 percent premium on bitcoin and other alternative cryptocurrencies, and Korean ICOs raised unprecedented amounts of money in mere hours.
This post is a summary of the most in-depth report ever written on the South-Korean blockchain and crypto eco-system. If you want to dive deeper with the full report, you can find it here.
South Korean Exchanges
During 2017’s great bull run, bitcoin and cryptocurrency trading volumes skyrocketed in South Korea to gargantuan proportions. At some point, the majority of global trading volume was by South Korean exchanges. Through 2018, Even despite numerous security breaches and hacks that saw innocent investors lose all of their money, volumes remained relatively high. Or perhaps so it seems.
There are many accusations of wash trading and artificial price manipulation towards the two dominant players on the court. UPbit, the second largest exchange in Korea, underwent several audits and inspections which concluded in the indictment of the exchange’s founder Song Chi-Hyung and two other senior staff members.
The three were charged with inflating trading volumes and manipulating price actions through various means — including a bot system — during the bull run of late 2017. Bithumb, the largest exchange in Korea, which capitalized on UPbit’s rocky year to significantly gallop past its rival in daily trading volumes, have also been accused by crypto exchange rating service CER of wash trading since the summer of 2018, claiming the exchange’s meteoric rise lately in trading volumes is mostly fake. Both exchanges have denied all allegations, and it remains to be seen how authorities will handle the situation leading into 2019. There are also allegations that the exchanges are dealing in wash-trading to falsely pump their volume numbers.
Crypto Regulation in South Korea
The government assumed a very clear position — blockchain technology is great and ought to be cultivated, yet cryptocurrencies pose a major threat to innocent investors and these unregulated markets are filled with bad actors. This resulted in two different approaches to these two sides of the industry. On the one hand, regulators followed in China’s footsteps and banned ICOs, imposing harsher measures to protect investors. On the other, the government continuously supported, even subsidized blockchain-based projects and pushed forward the use of blockchain technology within cities and services. However, the main push towards mass adoption is done by the really big companies.
Regulation-wise, The Korean cryptocurrency community is generally unhappy. More and more voices now speak up against the government’s inability to establish a proper regulatory framework in place and criticize the government’s reliance on committees and guidelines instead. The regulators are aware of the problem and are working to establish a healthy regulatory framework. Yet the Korean government is not known for its hastiness when it comes to regulation, and this process might take longer than expected. Nonetheless, Korea is at the forefront of the cryptocurrency and blockchain world, and the constant tug-of-war between over-regulation and the lack thereof has merely slowed progress, not halted it.
Leading Crypto Projects and ICOs
Korea’s ICO Mania started on May 2017 with the launch of fintech company Blockchain OS who raised no less than 6,900 BTC (Over $13.8M in value back than). The sheer volume of BOScoin’s ICO, alongside a compelling ‘new economy powered by revolutionary technology’ narrative, attracted a lot of attention and new interest in the cryptocurrency market from South Koreans. As ‘ICOmania’ expanded like a tour de force, it became harder for investors and regulators alike to ignore. The local regulator banned ICOs altogether in September of 2017.
Over $1.2B in ICO Funding
In spite of the ban, more ICOs followed. Q3 of 2017 only had two ICOs conducted at that time, but surprisingly, the number of ICOs conducted skyrocketed to 10 in Q4 and 13, 26 and 42 in the first quarters of 2018 respectively, despite the government’s negative position about ICOs. As more and more projects joined the fray, investors poured immense amounts of capital in hopes of monumental returns. Projects in Q2 and Q3 of 2017 saw respectable investments around $21 million, but in Q4 alone that tally increased astronomically to $316.8 million, crescendoing with the entire crypto market in the great bull run of 2017, and again, despite regulatory pushback. Overall, throughout 2018, 100 new projects were launched, raising a total of $898.5 million.
However, the great crypto recession caught up with the Korean market by the second half of the year, with fewer ICOs and much lower amounts raised.
A young Korean’s life is, more likely than not, dominated by a few select brands. Westerners might be stunned by the influence that a few South Korean brands — particularly chaebols (“chae” means wealth or property, “bol” is clan) — wield in Korea. These huge firms — which include Electronics manufacturer Samsung, automaker Hyundai, electronics manufacturer LG, and retailer Lotte — have dominated South Korea’s economy since the country’s economic revolution in the 20th century and helped make it the world’s fifth-largest exporter with the world’s 11th-largest gross domestic product (GDP). These five companies alone currently control more than 50 percent of the Korean stock exchange in terms of market cap, but there are as many as 45 such companies in Korea today.
These titans have more than dipped their toes in the pond. All of them are involved in blockchain projects in one manner or another, be it a cryptocurrency exchange, blockchain-based enterprise solution for small companies, or new but promising and risky platforms or tokens. With immense financial support, a massive user base, multiple products, and abundant use cases, these conglomerates are destined to be a leading factor in local and later on global adoption. Some universities even offer blockchain-related courses and a ‘blockchain campus.’ These examples are just some of the key components in integrating blockchain and cryptocurrencies into the lives of millions in South Korea, the same way smartphones became an inseparable part of our lives today.
Leading Blockchain Investors in South Korea
The meteoric rise of cryptocurrency in popularity and in profits in 2017 has garnered the attention of local venture capital funds and HNW individuals. Up until 2016, by which only one crypto-related VC had launched (Block VC) and only three VCs in South Korea had invested in any blockchain-related projects. An influx of five new VCs opened the next year, more than double the number of funds in the space up until then. Four of those five invest exclusively in blockchain and crypto-related projects. Three of them — Signum Capital, #hashed and Access Ventures — are now among the most prominent actors in the ecosystem. Some of their main investments include popular projects like ICON, EOS, Zilliqa, QTUM and VeChain.
Throughout 2018, seven more VCs opened, all of whom focus solely on blockchain and cryptocurrencies. It is remarkable to notice the resemblance in portfolios among these new firms; names like Fantom, TEMCO and Ontology resurface quite often. Blockwater is the newest big player in town, and yet it is also one of the most pervasive in the number of investments and assets under management.
This was a glimpse from the full state of the blockchain in South Korea report. Want to dive deeper into the Korean blockchain and crypto eco-system? You can download the full report here.
Special thanks to all those who worked hard in researching, interviewing, writing or just supporting our efforts. Special thanks to our friends in South Korea and the region John Yoon (Startup Radar), SOSO HyunSick Choi (Soso Labs), Hongzhuang Lim (XSQ), Daniel Song (Access Ventures) O kwon (foundation x), Alison Shim (Blocko/AERGO), Erica Kang (KryptoSeoul) Narae Lee(Blockcrafters) and Sinhae Lee (GBIC/Block72).
This post was originally published on Medium.