In the first quarter, trading fee income at domestic crypto asset exchanges was ‘halved’ compared with a year earlier. With the stock market booming and client funds shifting into equities, crypto trading volumes have declined. The once hot coin market is rapidly cooling.

According to the Financial Supervisory Service electronic disclosure system on the 20th, Dunamu, operator of Upbit, recorded first quarter trading fee revenue of KRW 228,679,880,000. That was down 55% from KRW 509,964,600,000 in the first quarter of last year. Bithumb also saw its trading fee income decrease by about 57%, from KRW 194,739,650,000 in last year's first quarter to KRW 82,477,420,000 in this year's first quarter.

The reason is the decline in trading volume. Last month, the combined trading volume of the five major domestic crypto asset exchanges (Upbit·Bithumb·Coinone·Korbit·Gopax) totaled $55.1 billion (about 82 trillion KRW). Compared with the peak level of $112.7 billion (about 168 trillion KRW) in July last year, it has effectively plunged to roughly half.

As a result, warning lights have come on for industry performance. On a consolidated basis, Dunamu posted first quarter revenue of KRW 234,600,000,000, down 55% from KRW 516,200,000,000 a year earlier. Operating profit dropped 78% to KRW 88,000,000,000 from KRW 396,300,000,000 in the same period last year, and net profit also fell 78% from KRW 320,500,000,000 to KRW 69,500,000,000.

Bithumb is in even worse shape. First quarter revenue was KRW 82,500,000,000, a 57.6% decrease from KRW 194,700,000,000 a year earlier, and operating profit plunged 95.8% from KRW 67,800,000,000 to KRW 2,900,000,000. Net profit swung from a KRW 33,000,000,000 surplus last year to a KRW -86,900,000,000 loss this year.

Bithumb explained, “Investor sentiment has shown a prolonged weakening amid geopolitical instability in the Middle East and upward pressure on interest rates, and this had a major impact as crypto trading turnover fell sharply.”

Customer funds are also flowing out of the exchanges. Customer deposits at the Upbit·Bithumb exchanges totaled KRW 6,999,600,000,000 in the first quarter, down 11% from KRW 7,867,800,000,000 at the end of last year. Specifically, Upbit deposits fell 10.8% to KRW 5,199,000,000,000 and Bithumb deposits decreased 11.5% to KRW 1,800,600,000,000.

Money flowing out of the crypto asset market is heading into equities. According to the Financial Investment Association, investor deposits in the stock market, the so called ‘stock market waiting funds’, stood at KRW 132,859,600,000,000 as of the 15th, more than double the KRW 56,518,500,000,000 a year earlier.

Policy factors are also freezing the coin market. Starting in January next year, a total tax rate of 22% will apply to annual crypto asset gains exceeding KRW 2,500,000, consisting of 20% other income tax plus 2% local income tax. There is a view that once taxation begins, liquidity in the domestic crypto asset market could contract further.

Industry participants say the US digital asset institutionalization bill, the ‘Clarity (CLARITY) Act’, if it wins final passage in the US Congress in July, could serve as a catalyst to revive the market. It could also influence the enactment of the domestic Digital Asset Basic Act, which is currently at a standstill.

Hong Jin-hyun, a researcher at Samsung Securities, analyzed, “With the (Clarity Act) clearing the US Senate Banking Committee on the 14th, the trend of digital assets being incorporated into the formal financial system has strengthened,” adding, “a meaningful signal in terms of normalizing market structure.”