Small Korean Investors are Buying Bitcoin Instead of Stocks

Bithumb, Korea’s largest cryptocurrency exchange, experienced a 182-times increase in virtual currency transactions this year. In January 2017, this figure was US$276.63 million, and in November it became US$51.91 billion. Business Korea reports that this figure makes up more than 80 percent of US$63.36 billion, the average monthly transactions volume in the KOSDAQ this year.

There are ‘concerns’ that the sudden influx of investment in cryptocurrencies will encroach Korea’s stock exchange, including the KOSDAQ.

Will Bithumb’s Transactions Surpass KOSDAQ’s?

According to Bithumb, their monthly transactions have increased on a month by month basis. In April, the figure was US$593.27 million. In May, this became US$4.68 billion, and in July it quickly rose to US$54.52 billion.

On the KOSDAQ, monthly transactions were declining. In April, it was US$63.69 billion, and in May, this dropped to US$50.91 billion. Although in July it was US$56.79 billion, monthly transactions fell again in August totaling US$54.53 billion that month.

On the 19th of August, the daily trading volume on Bithumb was US$2.4 billion and had surpassed the $2.24 billion adjusted daily trading volume on the KOSDAQ on the same day.

Suk Tae, a senior economist at Societe Generale Securities Korea, stated that ‘the craze of virtual currencies, including bitcoin, is one of the factors that adjust the KOSDAQ market.’ Suk Tae goes on to comment on the nature of trading virtual currencies and why small-scale Korean investors enjoy trading cryptocurrencies as a short-term investment.

The economist stated:

‘With few market barriers, the cryptocurrency market revolves mainly around retail investors more than the market, becoming a magnet for small investors.

‘There is little entry barrier on the cryptocurrency market, and there is no need to analyze each item as stocks. So, the digital coin market is more driven by individual investors than the KOSDAQ market. A greater variability than the KOSDAQ is another attractive factor for small investors.’

The head researcher at KB securities, Im Sang-Guk believes that many investors ‘have flowed into the virtual currency market which has a far bigger volatility than the stock market and allows 24 hours of trading.’

With the growth of Bithumb and Coinone, two of the world’s top 15 global digital currency exchange sites, South Korea has become the world’s 3rd largest market in bitcoin trading, after Japan and the US. South Korea has over one million registered daily traders in digital currency, and this exponential growth of cryptocurrencies is worrying the South Korean Government. Whether this trend in digital currency trading continues is dependent on governmental policies.

Government Intervention

There is great debate as to whether the South Korean government’s regulations on virtual currencies will slow down the digital currency craze. To control the situation, South Korea may start levying taxes on cryptocurrency transactions.

Cryptocurrency trading currently only incurs commission fees. Han Seung-hee the chief of the National Tax Agency on the 13th of October announced that the government is imposing a value-added tax, a capital gains tax or both on trades. The South Korean government will make an official decision in the first quarter of 2018.