DI - 07: Market Commentary | 09. 20.

1. Introduction

In early August, the Bank of Japan's (BOJ) unexpected interest rate hike strengthened the yen, triggering the unwinding of yen carry trades and sending ripples through global asset markets, including the U.S. equities. The cryptocurrency market was no exception to this macroeconomic shock.

Bitcoin and other major cryptocurrencies initially rebounded, with prices trending upward until the end of August after recovering from an early sharp decline. However, as September unfolded, the market transitioned into a sideways or downward movement. During this period, inflows into Bitcoin spot ETFs also rose steadily through August but have since tapered off, reflecting Bitcoin's declining price.

This analysis delves into recent trends in the cryptocurrency market, the capital flows into spot ETFs, and the current landscape of Korean centralized exchanges.

2. Market Trends and Major Issues

The total cryptocurrency market capitalization experienced a sharp decline of approximately 18%, dropping from $2.28 trillion on August 1 to $1.87 trillion by August 5. This downturn was driven by several macroeconomic and geopolitical factors, including the Bank of Japan’s (BOJ) unexpected interest rate hike, escalating tensions between Israel and Iran, and weaker-than-expected U.S. employment data for July.

However, the market began to recover following positive macro developments. On August 7, BOJ Deputy Governors Uchida Shinichi clarified that no further interest rate hikes would be implemented amid financial and capital market instability. This statement, combined with lower-than-expected U.S. initial jobless claims released on August 9 and a below-expectation July Producer Price Index (PPI) report on August 14, helped fuel the recovery. By August 24, the cryptocurrency market capitalization had rebounded by 21.8% from its August 5 low, reaching $2.2 trillion.

Despite this rebound, renewed concerns over a potential economic slowdown emerged following a decline in West Texas Intermediate (WTI) crude oil prices and the weaker-than-expected U.S. ADP Nonfarm Employment report. As a result, the cryptocurrency market capitalization declined again, falling by approximately 11%, from $2.2 trillion on August 24 to $1.97 trillion by September 11.

2.1. Trends in Cryptocurrency and Equity Markets Following Black Monday

The graph highlights the price movements of the Nasdaq (IXIC), KOSPI, and total cryptocurrency market capitalization from August 1 to September 11. As discussed in the earlier "DI - 06: Market Commentary | 08. 09.," the sharp decline in the Nikkei index on August 5 catalyzed a significant downturn across the Nasdaq, KOSPI, and cryptocurrency markets.

Between August 1 and August 5, the Nasdaq fell by 5.78%, KOSPI by 12.1%, and the total cryptocurrency market capitalization dropped by 18.2%. Notably, the Nasdaq was the quickest to recover, regaining all its losses within seven days of the August 5 dip and surpassing its August 1 level within just nine days.

In contrast, the KOSPI and cryptocurrency markets exhibited a slower recovery. KOSPI managed to recover its August 5 losses by August 16 but continued on a downward trajectory afterward. Cryptocurrencies initially rebounded from the Black Monday decline on August 8, fluctuating between stability and growth until August 24. However, after this brief recovery, cryptocurrencies experienced a sharp decline, wiping out most of the gains accumulated in the previous weeks.

3. ETF Flow

3.1. Bitcoin Spot ETF

The graph above shows the Bitcoin price trend and the cumulative net inflow of Bitcoin spot ETFs from August 1 to September 11, 2024. As of September 11, the fund size of Bitcoin spot ETFs is as follows:

• Total net assets held by spot ETFs: $51.96B / 4.59% of Bitcoin's total market cap
• Cumulative net inflow: $17B

Bitcoin spot ETFs experienced consistent net inflows until mid-August, coinciding with the recovery in Bitcoin prices. However, as Bitcoin's price began to decline, net outflows were observed through early September. Aside from the extreme price volatility in the second week of August, the overall trend indicated that the net inflows and outflows of Bitcoin spot ETFs closely tracked the directional movement of Bitcoin prices throughout this period.

3.2. Ethereum Spot ETF

The graph above shows the Ethereum price trend and the cumulative net inflow of Ethereum spot ETFs from August 1 to September 11, 2024. As of September 11, the fund size of Ethereum spot ETFs is as follows:

• Total net assets held by spot ETFs: $6.42B / 2.28% of Ethereum's total market cap
• Cumulative net inflow: -$562.6M

The Ethereum spot ETF saw a significant net inflow of $104.76 million during the second week of August. However, from the third week of August through the first week of September, the ETF faced continuous net outflows, mirroring the steady decline in ETH prices during this period. Notably, despite a 4.82% price increase in the fourth week of August, the ETF still recorded a net outflow of $44.54 million. As the second cryptocurrency to have a spot ETF listed after Bitcoin, Ethereum's ETF performance has been somewhat underwhelming during this timeframe.

4. Korean Centralized Exchanges

4.1. Trading Volume of Korean Top 5 Exchanges Compared to Binance

An analysis of the monthly spot trading volume for Binance and the top five Korean exchanges (Upbit, Bithumb, Coinone, Korbit, and Gopax) from January to August 2024 reveals several significant trends. The total trading volume on Korean exchanges peaked at $1.66 trillion in March, followed by a steady decline to $460.3 billion in June. However, driven by a rise in Bitcoin prices, trading volumes in Korean exchanges began to recover, reaching $468.5 billion in July and $509.5 billion in August.

In parallel, the market share of Korean exchanges (measured by a 7-day moving average) surpassed 50% in January but consistently declined, bottoming out at 10% in June. As trading volumes rebounded, the market share of Korean exchanges also saw a modest recovery, currently stabilizing around 13%.

4.2. Monthly Market Share Trends of the Top 5 Korean Exchanges

As noted in the previous "DI - 05: Market Commentary | 07. 19.," Upbit maintained a dominant market position, capturing up to 80% of market share during the bullish phase from January to March 2024. However, as the market entered a correction phase in Q2, the gap between Upbit and its closest competitor, Bithumb, narrowed from 60.3% to 33.3%, representing a reduction of 27%p.

With the rebound in Korean cryptocurrency trading volumes in July, the gap between Upbit and Bithumb widened once again. In July, Upbit held a 71% market share, while Bithumb accounted for 25%, and this gap remained stable at around 46% throughout August. This trend reinforces the previous analysis: "Upbit's strength in bull markets, competitors' strength in bear markets," a pattern that persisted throughout both July and August.

Similar to Bithumb, Coinone, Korbit, and Gopax experienced a recovery in market share during the market correction phase. However, with the exception of Korbit—which posted a notable 23.85% month-over-month increase in market share in July—both Coinone and Gopax continued to see declines in their respective market shares. Gopax, in particular, reversed all the gains it had achieved during the correction, falling to its lowest market share of the year at just 0.18%.

Upbit's market share dropped to 64.3% in June but rebounded to 71.3% by August, returning to levels last seen in May. Meanwhile, the combined market share of the top two exchanges, Upbit and Bithumb, has consistently remained between 95% and 97%, underscoring their dominant position in a highly concentrated market. Among the remaining three exchanges, Coinone has performed relatively well, maintaining a stable market share of approximately 2.5%.

5. Which Cryptocurrencies Are Most Popular in the Korean Market?

5.1. Purpose and Scope of Analysis

This chapter aims to identify the cryptocurrencies most favored by Korean investors. "Popular cryptocurrencies in the Korean Market" were defined as assets that have a high market share of global trading volume on Korean exchanges, a consistent share at an average level, and high average daily trading volume on the top five Korean exchanges.

The scope of this analysis is limited to cryptocurrencies ranked within the top 100 by market capitalization on CoinMarketCap and listed on at least one of the five major Korean exchanges. Data on market share and trading volumes from January 1, 2024, to August 25, 2024, was used. To assess the market share, consistency, and trading volume of these assets, the following metrics were applied:

• Market Share: The daily average market share of each cryptocurrency over the analysis period.
• Market Share Consistency: *(Average - Standard Deviation) / Average of each cryptocurrency.
• Trading Volume: The daily average trading volume (in USD) for each cryptocurrency from January 1, 2024, to August 25, 2024.

5.2. Analysis Methodology and Results

The methodology for this analysis follows these steps:

1. Each cryptocurrency is ranked based on three distinct metrics: market share, consistency, and trading volume. Separate rankings are generated for each metric.
2. To calculate the final ranking, weights are applied to each metric: 0.3 for both market share and consistency rankings, and 0.4 for the trading volume ranking.

The reason for assigning a higher weighting to the trade volume ranking is to prevent the overestimation of the domestic market's influence. The other two metrics—market share and consistency—are more closely tied to share percentages, and when the global trade volume is relatively small, this could lead to an inflated perception of the Korean market's impact.

5.2.1. Market Share Analysis

For the period from January 1, 2024, to August 25, 2024, daily market share data was gathered for 55 cryptocurrencies included in this analysis. Based on this data, the daily average market share for each cryptocurrency was calculated. Below are the top 10 cryptocurrencies ranked by average daily market share during this period.

5.2.2. Consistency Analysis

Building upon the data from the market share analysis, the standard deviation of each cryptocurrency's daily market share was calculated. The formula (Average - Standard Deviation) / Average was then applied to rank the assets. Cryptocurrencies with higher rankings in this analysis demonstrate a more consistent market share relative to global trading volumes, suggesting that their ㅏKorean market share remains stable over time.

5.2.3. Trading Volume Analysis

To assess trading volume, the total Korean market trading volume from January 1, 2024, to August 25, 2024, was analyzed for the top 100 cryptocurrencies. The daily average trading volume for each cryptocurrency was calculated, and the top 10 cryptocurrencies by average daily trading volume are presented below.

5.2.4. Comprehensive Analysis by Criteria

The earlier analyses of market share and consistency focused on cryptocurrencies ranked within the top 100 by market capitalization on CoinMarketCap that were listed on Korean exchanges. In contrast, the trading volume analysis considered the top 100 cryptocurrencies based on Korean trading volumes, regardless of their global market capitalization. This difference in selection criteria resulted in some variation in the assets analyzed across the different metrics.

To resolve this discrepancy, 32 cryptocurrencies that appeared in all three analyses—market share, consistency, and trading volume—were selected for further evaluation. The final rankings were recalculated based on these common assets, with the following weights applied: 0.3 for market share, 0.3 for consistency, and 0.4 for trading volume.

5.3. Insights

5.3.1. Dominating Popularity of STX and SEI

STX and SEI ranked first and second in the comprehensive analysis, showcasing explosive and sustained interest from Korean cryptocurrency investors. Both assets consistently performed well across all three metrics—market share, consistency, and trading volume—each securing a position in the top 10 in every category.

Following STX and SEI, the third to fifth positions were occupied by XRP, XEC, and SHIB. These assets also demonstrated strong, balanced performance, ranking within the top 12 across all metrics.

5.3.2. High Market Cap Assets Dominate Trading Volume

When examining trading volume alone, the top five cryptocurrencies were BTC, XRP, SOL, ETH, and SHIB. With the exception of SHIB, which ranks 16th by market capitalization, the others are among the highest-ranked assets globally—BTC (1st), ETH (2nd), SOL (5th), and XRP (7th). This indicates that, in terms of trading volume, these globally dominant assets also hold significant traction in the Korean market.

However, in terms of market share, these high-cap assets—BTC, ETH, and SOL—ranked much lower, at 29th, 32nd, and 25th, respectively. This suggests that while they generate substantial trading volume on a global scale, their relative influence in the Korean market is less pronounced, implying that domestic investors may favor other assets over these global heavyweights..

5.3.3. Contrasting Performances Among Memecoins

Among the 32 cryptocurrencies analyzed, four are memecoins: DOGE, SHIB, FLOKI, and PEPE.

As illustrated in the table, SHIB and DOGE performed strongly, ranking 5th and 8th, respectively, while PEPE and FLOKI lagged behind, ranking 22nd and 31st in the comprehensive analysis. SHIB and DOGE, with market capitalizations of 16th and 9th globally, ranked higher in the comprehensive analysis, whereas PEPE and FLOKI, with lower market capitalizations of 31st and 66th, struggled to maintain competitiveness. This is likely due to the fact that only SHIB and DOGE of the four memecoins are listed on Upbit, which has an overwhelming influence in the Korean market.

5.4. Limitations

Several limitations were identified in this analysis:

1. This analysis was limited to data from Korean centralized exchanges, excluding trading activity on decentralized exchanges (DEXs) and international platforms such as Binance, where many domestic investors may also trade. This omission may have overlooked significant trading trends occurring outside Korean exchanges.
2. Some of the 32 cryptocurrencies included in the comprehensive analysis were listed partway through the analysis period (January 1, 2024 – August 25, 2024). This created variations in the sample size of trading data for those assets, which could have skewed their performance metrics and rankings.
3. There is a possibility that some global trading volume data from certain exchanges was omitted during data collection. If such omissions occurred, it may have led to an overestimation of the Korean exchanges' market share, potentially distorting the results of the analysis.