The Korea Blockchain Association was launched Jan. 26 2018. Korea’s largest crypto exchange Bithumb (operated by BTC Korea.com) and other major exchanges in Korea like Upbit (operated by Dunamu), Korbit and Coinone are members of the association. The association had aimed to build a sustainable blockchain ecosystem in the expanding cryptocurrency industry. And it also established a self-regulatory system to fill up the blank of regulation.

Against the backdrop of the association’s such moves was the growth of crypto exchanges arising from the surge of cryptocurrency prices. The price of Bitcoin (BTC) showed signs of picking up in March 2017 and broke $5,000 in October the same year. BTC reached a peak of over $20,000 in December. On Jan. 26 when the association’s foundation ceremony was held, the top cryptocurrency fell to $11,000. Still, however, cryptocurrencies brought enormous wealth to some investors and exchanges.

Yet the so-called “crypto winter” came in a flash. BTC tumbled and numerous other cryptocurrencies called altcoin plunged more swiftly. Investors who resisted the bearish trend have been burned. Ordinary investors quit the market in droves and so-called crypto experts stopped investing too while watching the market.

These changes in investment sentiment have been revealed through the results of crypto exchanges. Coinone, which changed its settlement day from the end of June to the end of December, revealed the stark reality of the crypto winter through figures.

Coinone posted an operating profit of 94 billion won over one year from July 1 2017 when cryptocurrency trading was active. The company’s operating income to sales ratio reached 55.74% then. However, in the six-month period from July 2018 during which trading was scarce, Coinone’s operating income remained at 4.5 billion won with a net loss of 4.4 billion won.

Korbit where NXC led by Nexon Chairman Kim Jung-ju holds the controlling stake also finds itself in a difficult position. Korbit suffered an operating loss of 7.5 billion won amid falling profits and rising expenses. The company’s net loss swelled to 45.8 billion won because of the 9.9 billion won loss from disposal of cryptocurrencies and an appraisal loss of 32.4 billion won.

BTC Korea.com and Dunamu recorded relatively favorable results but their circumstances seem equally serious. The two companies were able to perform well in 2017 thanks to the bull run in the fourth quarter of 2017; the considerable parts of their results last year are attributed to the pickup in the first quarter before the crypto winter came.

Bithumb posted sales of 391.6 billion won last year, up 17.4% from 2017. Operating profit fell 3.42% to 256 billion won. Yet the company’s net loss amounted to 205.5 billion won, including the 121.4 billion won loss from disposal of cryptocurrencies, an appraisal loss of 205.5 billion won and a 20.5 billion won loss due to spoilage of cryptocurrencies.

Dunamu chalked up much better sales and operating profits last year than in 2017. Dunamu’s sales more than doubled from 211.4 billion won in 2017 to 470.6 billion won last year. Operating income also amounted to 287.5 billion won, up 213%. But the fact that Dunamu began to operate the crypto exchange in October 2017 needs to be considered.

“Korea’s major crypto exchanges can afford the next several years thanks to heaps of money they made in the bull run,” said an industry official, adding that a new momentum is necessary to cope with rapidly changing market conditions. “They need to go abroad or add new business models to keep and raise their corporate values.”

What will happen to crypto exchanges in 2019? The source of exchanges’ profits is “transaction fees.” Their basic business model is to let more people conduct more transactions through their platforms by offering better user experience (UX). Toward that end, exchanges strive to list tokens of better projects and reduce the risk of hacks.

The item in financial statements showing an exchange’s customer base is “members’ deposits.” Bithumb’s customer deposits had amounted to 1,299.2 billion won in 2017 but plunged to 232.9 billion won as of Dec. 31 last year. Dunamu’s customer deposits also declined from 1,037.4 billion won at the end of 2017 to 294.4 billion won at the end of last year. Customer deposits at Korbit and Coinone decreased sharply too.

Bitumb, Upbit, Coinone and Korbit -- Korea’s top four crypto exchanges -- receive the won, Korea’s fiat currency, through real-name virtual accounts. “We are doing whatever we can to attract new members but to no avail. Investors interested in cryptocurrency appear to have already subscribed to a few exchanges,” said an official at a major exchange, adding that “even online ads are not effective in attracting new investors.” /shim@decenter.kr

사동석 기자

sahds@dcenter.kr