Over 90% of token-only exchanges suffered complete capital erosion last year, forcing many to shut down amid mounting financial strain and regulatory hurdles.
By Bena Ilyas
Edited by Julia Sakovich
Updated
3 mins read
South Korea’s cryptocurrency market faces growing pressure as the number of registered exchanges declines sharply. A Financial Intelligence Unit (FIU) report on February 7 reveals that only 31 crypto trading firms remain registered, down from 42 last year. That represents a drop of over 26%, highlighting escalating challenges for digital asset businesses.
Several delisted exchanges, including ProBit, Huobi Korea, and Bitrade, struggled due to limited fiat trading support. Many operated solely as token-based platforms without real-name bank accounts, making financial transactions difficult. Without access to fiat currencies such as the Korean won or US dollar, attracting users became increasingly difficult.
Further complicating the situation, some exchanges failed to renew registrations, resulting in automatic removal from the official registry. The FIU report indicates that the downward trend may continue as some remaining firms plan to exit the market or shift operations overseas in response to persistent regulatory uncertainty.
The outlook for token-only exchanges has remained grim for an extended period. Firms lacking fiat on-ramps have faced mounting difficulties in a market that grows more challenging. The FIU report indicates over 90% of such exchanges suffered complete capital erosion last year. Severe financial strain forced platforms like Qubit and Coinbit to shut down after failing to sustain operations.
Regulatory challenges are at the center of the issue. South Korean laws require exchanges dealing with fiat transactions to partner with local banks and establish real-name accounts for users. However, banks have hesitated to engage with smaller platforms due to strict anti-money laundering (AML) policies and concerns over compliance risks. The result has been a market dominated by a few large players while smaller firms fade away.
More closures appear likely in the future as the report signals that additional exchanges may exit, either voluntarily or through enforcement measures. Some firms are shifting focus to international markets, aiming to bypass South Korea’s rigid regulations.
While smaller exchanges struggle to stay afloat, even major players are not immune to regulatory scrutiny. As Coinspeaker earlier reported, Upbit, one of South Korea’s largest cryptocurrency exchanges is facing potential sanctions for failing to comply with money laundering and Know Your Customer (KYC) regulations.
Despite the challenges facing exchanges, South Korea’s crypto market remains unique in some ways. The country’s so-called “kimchi premium” — the price gap between bitcoin’s value on South Korean platforms versus global exchanges — recently hit its highest level in ten months.
According to CryptoQuant, the premium spiked to 9.7% at around 2 a.m. on Monday, marking its highest level since April 14, 2024, when it exceeded 13%. At the time of writing, the premium had adjusted slightly, sitting at 8.24%.
This premium phenomenon stems from South Korea’s strict capital control policies, which prevent foreign investors from accessing the local crypto market. Additionally, local investors looking to take advantage of arbitrage opportunities by buying crypto from foreign exchanges face regulatory hurdles, making it difficult to narrow the price gap.
Disclaimer: Coinspeaker is committed to providing unbiased and transparent reporting. This article aims to deliver accurate and timely information but should not be taken as financial or investment advice. Since market conditions can change rapidly, we encourage you to verify information on your own and consult with a professional before making any decisions based on this content.
With over 3 years of crypto writing experience, Bena strives to make crypto, blockchain, Web3, and fintech accessible to all. Beyond cryptocurrencies, Bena also enjoys reading books in her spare time.
