Korea’s Crypto Culture — Craze on the Han River
What does a fishing net and fermented cabbage have in common with crypto industry in Korea?
Why do Koreans love trading crypto and how will the industry change in the near future?
One word appropriate to describe a Korean crypto story is gambling. But that is about to change.
Few people have not heard about Bitcoin in Korea.
In 2017, a country of just over 50 million people did 20% of all Bitcoin trades and was the largest market for ETH. Up to 3 million users opened crypto trading accounts. Korean students were checking bitcoin price between classes, workers were trading it as they lined up for coffee, and grandparents were playing the market at home.
The fever reached its peak when the local bitcoin price was up to 40% higher in Korea compared to the US exchanges. Coinmarketcap even dropped South Korean prices from the crypto rates. The phenomenon got the name of ‘Kimchi premium’: famous fermented cabbage side dish.
The kimchi premium disappeared when the government clamped down on speculation in 2018. First, the government forced to trade crypto using real name bank accounts and later that year banned ICOs altogether. The kimchi premium might have long gone, but the fever is still here:
-7% of South Koreans bought #cryptoassets in 2019.
-$6 000 USD is an average investment per person.
-60% — is the growth of invested amount compared to 2018.
One of the explanation of this this fever is contributed to Korea being quick to new tech adoption, but there is more to it: culture and narratives.
Understanding Korean culture: The Miracle on the Han River
The Korean war of 1950–1953 left South Korea one of the poorest country in the world. In 2020, it is one of the richest.
The fast economic grow has been attributed to family-owned conglomerates known as chaebols, emphasis on exports, hard work of the labor force and Korean mentality. The mentality of getting things done and fast.
빨리 빨리 ( Fast! FAST!) mentality permeates Korean lifestyle. Every second counts. Food has to be delivered quickly, trains arrive on time, buildings constructed in a matter of weeks. Whatever you do, please do it fast and efficiently. And getting rich fast is not an exception.
It has become more difficult to get richer, however. Since 2012 onwards economic growth has slowed down to reach around 3% from double digits growth in until 2000s. So a way to get rich included investments in stocks or real estate, however, the market is not for everyone.
Lack of high-risk investment, real estate and domestic stocks became less attractive when real estate got expensive and interest rates rose. Derivates trading have tough certification requirements and overall tech stock index KOSDAQ barely increased since 2011. An alternative for a long time has been gambling.
Way to get rich fast — gambling.
The thing is, gambling is not even legal in Korea.
Games including a lottery, horse racing, boat racing and cycling, casino gambling is illegal — even for Koreans who travel outside the country.
According to the Korea Center on Gambling Problems, which was established by the government in 2012, the prevalence of gambling addiction is two-to-three times higher in Korea than in other major countries. While it’s unclear how those statistics are compiled, the notion that Koreans are uniquely susceptible to gambling addiction is a widespread social theory that informs the laws surrounding the issue.
With other investments being limited, crypto seen as a fast way to get rich.
Koreans see crypto exchanges as gambling to try to earn a lot of money in a short period of time.
In the West the crypto stories of ‘unbank the bank, “long Bitcoin, short the bankers,” or Bitcoin as a digital cold are dominating the narrative. But these stories are less influential in Korea where trust in the financial and banking sector is high.
At the end of the day, Bitcoin story as a digital gold is not seductive enough because gold cannot skyrocket in price by 100% in a day.
So, what does an inclosing fishing net have to do with crypto?
To keep traders engaged and give a rush of adrenaline some local exchanges became experts to meet the needs.
For example, a listing in a major exchange always attracts attention of investors, but only in Korea a delisting is equally an opportunistic moment.
A delisting window requires closing down deposits, thus with an inflow of new tokens restricted, speculators pump the price to get the last hooray before an inevitable dump. Naturally, delisting notices get the same or even more attention among speculators as listings.
A more exciting feast is an exchange maintenance. When deposits & withdrawals are closed, but trading is not disabled has a name of 가두리 (an inclosing net used to contain live fish). Similar to fish which cannot escape the net, closed markets do not depend on external prices and arbitrage is not possible making trading this environment a real feast for gamblers.
To be fair, this type of an internal market trading has been popular in Korea in stock trading as well, but crypto provided new opportunities to use the same tools that had already been tested before.
Some exchanges did not even bother to open crypto deposits & withdrawals from the launch and specifically focused on internal market trading. With a new crypto regulation in Korea those exchanges are already facing extinction.
Regulation — an industry on a verge of change
Starting March next year, exchanges will have to register with the financial regulators. All exchanges will have to have an ISMS security license and real name bank accounts (only 4 exchanges have both).The heads of cryptocurrency exchanges who fail to register until September 2021 could face up to five years in prison or up to KRW 50 million in fines.
New listings in Korea are also likely to become rare events as the number of exchanges decrease and regulatory scrutiny increases. Additionally, a proposal has been put to tax cryptocurrency gains at 20% rate starting October 2021.
With all these changes a crypto narrative as an alternative for gambling or a way to get rich fast is likely to change. It also means a decrease of fiat inflows from speculators, but on the upside, institutional investors and fervent crypto believers will have a more transparent, trustworthy and sustainable investing environment and will eventually create a new crypto narrative.