As cryptocurrency markets revive, investors will take special note of their performance in a few key markets. South Korea is one of them.
The Asian country emerged as one of the top markets for cryptocurrencies last year. South Koreans were responsible for a third of all bitcoin trades occurring in cryptocurrencies by the end of last year. Customers for cryptocurrencies spanned a broad age range and profile. South Korean investors paid “kimchi premiums”, a reference to inflated prices in the country, to invest in cryptocurrencies. Their influence in crypto markets was such that, at one point in time, they accounted for as much as 17 percent of all Ethereum trades occurring in cryptocurrency markets last March. The price of Ripple, another virtual currency popular there, crashed at the beginning of this year after a popular site that aggregates crypto exchange listings did not include trading data from South Korea. (See also: Bitcoin Price Crashes On Fear Of South Korea Cryptocurrency Ban).
What Is The Allure Of Cryptocurrencies For South Korea?
Several newspaper articles and reports have analyzed the affinity of South Koreans for cryptocurrencies and come up with theories for their popularity. Broadly those theories can be condensed into three.
The first reason for the popularity of cryptocurrencies is prevailing economic conditions in the country. Even though it is a fairly large and prosperous one, the South Korean economy suffers from a youth unemployment problem. The youth unemployment rate last year was 9.8%. In response to the high numbers, the government has already unveiled a program to provide incentives to small and medium-sized enterprises to hire young workers. A hierarchical societal configuration, expensive living costs, and a fiercely competitive employment market also do not help matters.
“For young Koreans, cryptocurrency seems like a rare shot at prosperity,” an article on the online publication The Verge states. The same article quotes a 20-something journalist as saying that cryptocurrency investments are also a means for a largely homogenous and well-educated workforce to distinguish themselves from peers. (See also: South Korea Exchanges Move To Mainstream Cryptocurrency Use).
Familiarity with micropayment transactions is another reason for the popularity of cryptocurrencies. South Koreans have long been early adopters of technological innovation, whether it is social networks or video games. It also has the world’s fastest Internet speeds and a well-developed telecommunication system to facilitate mobile payment systems. Japan, another nation that is big on cryptocurrency trading, has a similar story.
A robust gaming industry has made South Koreans comfortable with electronic micropayments, an idea that is yet to take hold in the West. For example, Hangame, a Korean gaming company, had revenues of $30,000 per day on micropayments of 50 cents each back in 2001, when online casual gaming was mostly free. By the end of the year, the same company was earning $80,000 per day and, within three years, it had hit $93 million for the year in revenue. Businesses had cropped up around its games, including black markets. While cryptocurrency-related businesses have yet to see similar revenue, it would not be a stretch to imagine these figures in the future once the South Korean government puts appropriate regulations in place.
The third reason for the popularity of cryptocurrencies is political uncertainty. South Korea’s neighbor North Korea was categorized as a “state of concern” and recently launched a nuclear device. Kwak Keumjoo, professor of psychology at Seoul National University, told Bloomberg that bitcoin’s stateless status appeals to investors who are wary of North Korea’s intentions. Cryptocurrencies became popular as a form of investment as charges against the country’s former President Park Geun-hye were building up.
The Bottom Line
A combination of political uncertainty, familiarity with micropayment systems, and economic problems has made cryptocurrencies an attractive option for South Korean investors. The country has always been an early adopter of key world-transforming technologies. It may be the case that the country may lead the way once again by incorporating cryptocurrencies into mainstream trading.
Investing in cryptocurrencies and other Initial Coin Offerings ("ICOs") is highly risky and speculative, and this article is not a recommendation by Investopedia or the writer to invest in cryptocurrencies or other ICOs. Since each individual's situation is unique, a qualified professional should always be consulted before making any financial decisions. Investopedia makes no representations or warranties as to the accuracy or timeliness of the information contained herein. As of the date this article was written, the author owns small amounts of bitcoin.