Upbit in Trouble? Why the Korean Listing Premium is Slowly Disappearing

Original Title: Korean Meme Mania

Original Author: MORBID-19

Original Translation: Deep Tide TechFlow

I hope everyone can earn life-changing money on-chain. No luck? Maybe you were dumped by the Korean market. I’ve seen dozens of profit and loss screenshots with profits ranging from tens of thousands to even millions of dollars. Even in real life, I've heard that some people I know not too far away have also made a lot of money. Yes, if you don't trade meme coins, you won't make money.

Until now, the public perception was that Koreans only trade on centralized exchanges, mainly on Upbit. That's only partially true. What's the point of centralized exchanges when there's a thousand times more opportunity on-chain?

However, when you look at $DOGE and $SHIB, Upbit is still the second largest spot market.

"Do not underestimate the crazy Korean buy orders" is an old saying.

This time the Korean market feels different

But where is the premium? For the past few weeks, I’ve been talking about the Korean market premium as a sentiment index. If the Korean market premium reaches +10%, it's time to slowly stabilize. But this time seems different. I saw someone checking their Binance portfolio on the subway, friends asking about DOGE.

But why is there no 10% Korean market premium?

The Bitcoin price reaching $90,000 is unbelievable. But this chart looks nonsensical. What's going on?

Are Koreans not buying in? Not really. Recently listed projects on Upbit have all seen significant gains.

Have new users not increased? Not really. Korean crypto apps have been trending high on the app store recently.

Have we gotten better at arbitrage? Not really.

If so, why didn't we perform better earlier this year?

Actually, we have indeed found better ways to arbitrage the Korean market premium. The team at Presto Research has done a great job in this regard: while it may just be because "we are still in the early stages," Upbit's recent trading volume has exceeded $18 billion, much higher than the $14 billion in March 2024 when the Korean market premium reached 10% and remained at 5%. So why is there no premium now?

So, what has changed from March 2024 until now? I believe the main reasons are: 1) The listing of USDT, 2) Macro market conditions, 3) Implementation of the "Virtual Asset User Protection Act." Although Bithumb listed $USDT in December 2023, Upbit followed relatively late in June 2024. Prior to this, most Korean investors used $TRX or $XRP to move cryptocurrency from Korean exchanges to global platforms such as Binance, Bybit, and OKX. With the listing of USDT, it is now easier for people to arbitrage the premium and directly invest in USD.

Especially as the Korean won weakened and the Korean stock market significantly underperformed compared to cryptocurrency and the U.S. stock market, interest in investing in USD surged. This led to an increase in USDT trading volume, with its market share currently around 9%, compared to only 2.6% in December. It is important to note that most trading pairs on Korean exchanges are in Korean won (e.g., BTC/KRW, ETH/KRW), not stablecoins. This means that most of the USDT trading volume comes from the USDT/KRW trading pair.

Therefore, one of the easiest ways for Koreans historically to make money has been through Korean market premium trading. This includes buying USDT, transferring it to overseas exchanges, earning profits, and returning to the Korean market when a premium appears (while also earning through the Korean won after the law's implementation + Bithumb's fee-free trading promotion) — or simply buying USDT when the Korean market premium is low and selling when it is high. This type of trading has become more active, and I believe it is suppressing the Korean market premium.

—Min Jung (To read the full article, please click here)

Oh my, I hadn't thought of that before. Therefore, my previous assumption that the Korean market premium would disappear as an indicator of a bull market with the activation of institutional accounts now seems completely outdated. The Korean market premium may be meaningless altogether!

But is this ultimately a good thing or a bad thing?

I'm not sure either. For Koreans, a lower Korean market premium means a more fair price. But for the broader market, they lose an indicator of market tops.

However, I think Koreans are also slowly losing something to some extent. Just today, the Financial Supervisory Service (FSS) of Korea proposed allowing exchanges to freeze cryptocurrency trading accounts without notifying users.

Under the Virtual Asset User Protection Act, exchanges must disclose the reason for an account freeze before taking action. However, the FSS hopes to allow exchanges to pre-emptively freeze accounts in certain "special circumstances" to respond to urgent situations such as hacking, fraud, and familiar money laundering attempts.

The principle is to provide advance notice, but they emphasize that the predictability of the reasons for the account freeze and the purpose and intent of the advance notice should be thoroughly considered.

The same applies when the National Tax Service or investigative agencies request an account freeze and request a delayed notification to achieve their investigative purposes.

The FSS emphasizes that if there are no unavoidable circumstances preventing it after careful consideration, advance notice must be given.

Wait, what does this mean? Not only do they allow pre-emptive freezing of accounts to protect consumers, but they also aim to protect national interests? Who would have thought. Yet another reason not to leave money on a Korean exchange. Imagine making five times your money on some random shitcoin on Upbit only to have your funds frozen by the tax authorities.

Needless to say:

· The city of Paju in Gyeonggi Province announced plans to become the first local government in Korea to directly sell virtual assets confiscated from local tax defaulters to collect outstanding debts.

· To implement this plan, Paju City notified 17 individuals on the 13th who collectively owe 124 million KRW in local taxes, warning them that their virtual assets will be transferred and sold.

· The city has already confiscated these tax defaulters' virtual assets through a cryptocurrency exchange. If these individuals fail to pay their overdue taxes by the end of the month, the city plans to transfer approximately 50 million KRW worth of virtual assets to their accounts to offset the unpaid taxes.

· According to the city government, virtual assets have recently been used by tax defaulters as a means to hide or transfer assets. An official from the city government explained, "Sending a clear message to the defaulters through the collection via virtual assets, they cannot hide their assets, and we will continue to track the defaulters' properties until the final implementation of the tax measures." — KBS News

Why would Koreans choose to keep funds on exchanges? Why would they want to convert their cryptocurrency to KRW? As the market grows, this issue becomes more apparent. If people know that cryptocurrency assets are so easily confiscated, who would be willing to store them in Korean exchanges?

If cryptocurrency is indeed a trillion-dollar opportunity and the government is willing to support it, then funds must be able to flow freely. People prefer to use dollars over yuan for a reason because the latter could be confiscated.

It is precisely because of the potential for "confiscation" that the crypto industry has emerged. Imagine an industry being embraced only to revert to outdated ways of thinking; this is unreasonable.

Such protectionist and high-control measures will only increase capital outflows, especially in high-risk on-chain activities. Assets will remain on-chain, and what they seek to protect will instead be destroyed due to the fear of loss.

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