Largest crypto exchanges struggle for bank relationships

Finance

Published: 12 Jul. 2021, 18:36 Updated: 12 Jul. 2021, 18:55

Largest crypto exchanges struggle for bank relationships

Bitcoin price is displayed on a digital screen operated by cryptocurrency exchange Upbit in Gangnam District, southern Seoul, last month. Bitcoin prices plunged to below the $30,000-mark last month after soaring to above the $60,000-mark in April and have not fully recovered since. [YONHAP]

The country’s largest crypto exchanges are sweating it out along with smaller, less-credible competitors as banking relationships are uncertain and they could find themselves unable to operate legally in Korea later this year.

Upbit, Bithumb, Coinone, and Korbit already have partner banks that are issuing real-name bank accounts, accounts in the name of the actual trader of the cryptocurrencies, for the clients, but these agreements must be renewed.

Upbit, the country's largest exchange by volume, is working with K bank, Bithumb and Coinoine with NongHyup Bank and Korbit with Shinhan Bank.

Banks are saying that they are still mulling what to do about renewals, and they are willing to take the decision down to the wire.

They have been asking the country's financial regulator to free them of liability in the case of fraud or failures at the exchange level if they are not directly involved in the fraud or failure, but the regulator has rejected this request.

"Banks should issue real-name accounts if they think they can handle it," Financial Services Commission Chairman Eun sung-soo said earlier this month.

"All banks are cautious about becoming the first to issue real-name bank accounts with Chairman Eun making some tough remarks," a source from the banking industry said. "As there is some time left, [banks] will likely make a decision at the last minute."

Teaming up with exchanges is not a very appealing deal for the banks. Profits from real-name accounts for exchanges have been growing but are still very small relative to their overall businesses.

K bank made 5 billion won ($4.4 million) from Upbit accounts in the first quarter. NongHyup earned 1.3 billion won from Bithumb accounts and 330 million won from Coinone accounts and Shinhan Bank earned 145 million won from Korbit.

Shinhan Bank's net profit in the first quarter was 654.6 billion won, and earnings on Korbit accounts were only 0.02 percent of the total.

Under a guideline recently crafted by the Korea Federation of Banks, whether the chief of an exchange has been involved in any fraud cases has been added to the list of criteria for accepting business from the exchange.

The deadlines are fast approaching.

Upbit's contract with K bank expired at the end of last month. Rather than definitely renewing the contract, the bank has deferred its decision to until Sept. 24. It is still offering accounts to Upbit traders. Bithumb, Coinone and Korbit are in the same boat.

"We are planning on inking a short-term contract with partnering exchanges, effective until Sept. 24 at the end of this month because there hasn't been enough time for us to assess the exchanges based on tougher guidelines," a spokesperson from NongHyup Bank said. "Then we will likely decide on whether to ink longer-term contracts with the exchanges in August."

A Shinhan Bank spokesperson also said that the bank is reviewing plans to extend the existing contract through Sept. 24 and will then assess whether to sign a longer-term contract.

While the country's four major exchanges are under the gun, the situation is only worse for some 60 other smaller exchanges, and they are trying various strategies to appeal to banks.

Probit, for instance, delisted hundreds of low-performing coins over the past couple of months. On Monday, it announced it hired three outside experts including a patent agent and formed a six-person committee that will oversee the listing and delisting of coins on the exchange.

With the potential for Korea to become a cryptocurrency exchange graveyard, some are voicing concerns on potential monopoly.

"If [smaller] exchanges are banned, it would only increase the market share of the largest exchange in the country," said Rep. Yun Chang-hyun of the major opposition People Power Party. "This could be a problem in terms of fair competition."

According to Yun, Upbit has 80.6 percent of the Korean market as of May, a huge increase from 55.8 percent in January.

Cryptocurrency trading has lost some steam as bitcoin prices have dropped about 50 percent from the peak in April.

BY KIM JEE-HEE, AHN HYO-SUNG AND YOUN SANG-UN [kim.jeehee@joongang.co.kr]