[NEWS IN FOCUS] Crypto winter tests faithful, drives some to property deals

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[NEWS IN FOCUS] Crypto winter tests faithful, drives some to property deals

Published: 23 Apr. 2023, 06:00

Souvenir tokens representing cryptocurrency Bitcoin and the Ethereum network, with its native token ether, plunge into water in this illustration taken on May 17, 2022. [REUTERS/ YONHAP]

In the depths of the crypto winter, the faithful are muddling through one way or another.

Values are down, and worse so are volumes. Once crypto kings are on the lam or in the clink already, and regulators are making up for lost time by keeping a lid on the market and turning on a dime from passive to aggressive.

Remaining believers are getting by by shifting to real work in real assets, at least temporarily abandoning the game, while others are sticking it out, losing money on every coin they mine.

"There's no money in the business right now," Park Po-jun, an attorney at the Kisung law firm, said.

Park was once active in crypto law. He's now focusing on real estate deals.

"A lawyer prefers an industry with lots of disputes. But there are hardly any disputes in crypto right now because people are not buying."

Average daily transactions on 36 virtual asset service providers plunged 43 percent in the second half of last year from the first half of the same year, according to a report by the Financial Services Commission in March.

Operating profit nosedived 80 percent.

The number of registered accounts was down 10 percent to 1.32 million.

Rapid rate rises and stubbornly high inflation are taking a toll, while $60 billion collapse of Terraform Labs last May and the bankruptcy of Sam Bankman-Fried's FTX in November have hit sentiment hard.

In the first quarter, 59 damage reports were filed with the Financial Supervisory Service (FSS) related to crypto assets fundraising without permission, up 47.5 percent on year.

Illegal business operators are "deceiving consumers through increasingly complex and sophisticated methods," the FSS wrote on April 13. They are falsely promoting coins and creating fake crypto wallet websites.

"Right now, real estate is doing very well because there are a lot of people who want to cancel their contracts as the market decelerates," Park added. "The difference with crypto is people tend to think their investment failed if crypto value plunges because it's virtual, whereas they believe they have been scammed if a property price goes down as it's tangible. So people aggressively file a lawsuit for losses from real estate."

Crypto mining machines operating at a plant in Hwaseong, Gyeonggi, run by a crypto miner Ha Jun-seon. [HA JUN-SEON]

A Gyeonggi-based crypto miner has chosen to hang in there and eat the cost of doing so.

“Anyone who says they’re making money from crypto mining right now is either someone who has other sources of income or scammers in a pyramid scheme,” Ha Jun-seon, 29, who runs a 300-pyeong (992-square-meter) mining operation in Hwaseong, Gyeonggi, said. “I’m paying the costs of the mining plant through income earned from other businesses or by selling the coins I had mined.”

Electricity costs are a big problem for crypto miners, especially in summer and winter when the price jumps due to increased demand. This is expected to become more of a problem as rates are set to rise.

On average, every machine consumes about 100,000 won ($75) of electricity monthly, Ha said. He runs 160 machines. Ha paid 40 million won just for electricity last summer.

Each machine can mine coins worth between 80,000 won and 120,000 won a month.

“I may temporarily halt the operation of the machines if the electricity bill grows too much,” he added.

But some are seeing opportunities in the crypto winter, according to Park Sung-jun, CEO of Andus, which operates the AndUsChain blockchain platform.

“As the crypto bubble shrinks, there’s a bigger chance for the funds to flow into proper businesses,” Park said.

“There’s a mudfish in every market.”

Park added the misselling of certain private equity funds that resulted in trillions in damages did not result in the abolishment of the funds.

“This is seasonal,” Park said. “People who left the industry during the season didn’t make money, but those who stayed did.”

The total crypto global market capitalization volume rose to around $50 billion in April, up from around $30 billion at the beginning of the year, according to CoinGecko.

A total of $114 million flowed into digital asset investments in the third week of April, James Butterfill, head of research at CoinShares, wrote in a weekly report on Monday.

Inflows were predominantly in the United States and Germany. Bitcoin was the main focus for investors, with inflows of $104 million in the week.

Bitcoin, which traded above $67,000 at its peak in November 2021, now hovers around $30,000.

“We believe this is a flight to safety by investors fearful of the ongoing traditional finance challenges,” Butterfill added.

BY JIN MIN-JI [jin.minji@joongang.co.kr]