Special Report on the Korean crypto market: Digital Subcontinent under Kimchi Premium

1. Introduction

As the global crypto market heat tends to stabilize, South Korea continues to showcase an "alternative prosperity" characterized by active trading and rising enthusiasm.

According to the "Annual Payment Settlement Report" released by the Bank of Korea on April 21, it is shown that by the end of 2024, the total market value of the South Korean market will exceed 100 trillion won (approximately 74.8 billion USD), with the five major domestic exchanges managing a total of 73 billion USD in assets; the average daily trading volume in December surged from 2.38 billion USD in October to 10.7 billion USD, surpassing the two major South Korean stock exchanges in just two months. The annual revenue of the Korean crypto market is expected to grow from 264.3 million USD in 2024 to 635.4 million USD in 2030, with a compound annual growth rate of 16.1%. As of April 2025, it has been confirmed that 25 million people have opened accounts in crypto exchanges, investing in cryptocurrencies. About half of South Korea's 51 million population has invested in the crypto market. Even more noteworthy is the unique "Kimchi Premium" phenomenon in the South Korean crypto market, which refers to the significantly higher prices of cryptocurrencies (such as Bitcoin, Ethereum, etc.) on South Korean exchanges compared to other major global exchanges. In March 2024, this premium reached 8.5%, peaking at 10% in November, far exceeding the global average, reflecting the extremely high enthusiasm of local investors and the arbitrage demand under capital controls.

The massive flow of funds, a wide user base, and unique market price disparity effects have jointly shaped the high activity and extraordinary popularity of the South Korean crypto market, which stands out like a "golden land" in the digital era on the global crypto map. Why has the South Korean crypto market experienced such rapid growth? We will analyze the underlying logic behind this digital hotbed from three dimensions—driving factors, current situation, and future opportunities: How do political and economic structures give rise to strong demand for hedging and speculation? How has the local ecosystem transformed from "Kimchi Premium" to an average daily trading volume of 10 billion USD, creating global leading trading vitality? Looking ahead, what tracks and innovations will continue to drive the South Korean market to lead? Next, let us delve into this phenomenal prosperity.

2. Analysis of the Reasons for the Booming Crypto Market in South Korea

2.1 Economic reasons

Investment channels are restricted

Traditional investment channels in South Korea are relatively limited. Under the consumer choice theory framework, individuals, when facing limited resource allocation, will weigh the utility among different asset classes to maximize expected returns.

When traditional investment assets such as real estate and stocks face real constraints like high prices, declining returns, poor liquidity, and high entry barriers, investors naturally tend to seek alternative assets with higher marginal utility.

In South Korea, traditional investment channels are facing structural difficulties. Taking real estate and stocks as examples:

• Real Estate:

In 2023, South Korea's economic growth rate is only 1.4%. Although it is expected to rebound to 2% in 2024, consumer and investment confidence remains weak.

Against this backdrop, housing prices remain high, showing structural contradictions. Since 2010, the capital region has increased by 47.1%, and the five major metropolitan cities have risen by 76.5%. In 2024, transaction volume in the capital region decreased by 7.5% year-on-year, while Seoul saw a consecutive decline over three months from August to October (20.1%, 34.9%, 19.2%).

In the face of the "three highs and one low" situation of high housing prices, high loan rates, high interest rates, and low transaction volume, traditional real estate no longer possesses widely adaptable investment attributes, and market participation enthusiasm has noticeably cooled. Young people and low-to-middle-income earners are restricted in purchasing property, prompting them to turn to emerging investment channels such as crypto assets, which offer high volatility and high return expectations.

• Stock

In terms of the stock market, the KOSPI (Korea Composite Stock Price Index) fell by 8.03% in 2024, far below the Shanghai Composite Index's +12.68% and the Nikkei 225's +17.06% during the same period. At the same time, the S&P 500 rose, causing a gap of 32.3% in returns between the two markets and the Korean market, the highest since 2000. Amid a general recovery in global stock markets, the Korean market is showing a "孤单下行 (isolated weakness)" situation. Investor confidence has been significantly undermined.

Against the backdrop of continued sluggish performance in the traditional stock market in South Korea and weak earnings expectations, some South Korean investors are beginning to turn their attention to the more volatile and higher return potential of the crypto market.

low interest rates and loose monetary environment

The long-term accommodative monetary policy and low interest rate environment have prompted South Korean investors to accelerate their shift towards high-yield assets. Since the pandemic, the Bank of Korea's benchmark interest rate has remained at 3.5% for an extended period, significantly lower than the Federal Reserve's rate of over 5%, leading to a decline in the attractiveness of savings and making it difficult for real returns to withstand inflationary pressures.

In this context, the demand for high-volatility, high-return assets has increased. Cryptocurrencies have become the preferred allocation direction for risk-tolerant investors, especially among the younger demographic, due to their strong return potential, low entry barriers, and high liquidity. Overall, the low interest rate policy has diminished the attractiveness of traditional financial instruments, further driving funds towards crypto assets.

Expectation of Korean Won Depreciation

In recent years, the Korean won has continued to depreciate, with the exchange rate against the US dollar dropping to 1473.75 won in April 2025, the lowest level since 2009. The depreciation of the won, combined with high oil prices and rising supply chain costs, has increased domestic inflationary pressures. Data shows that in March 2025, South Korea's CPI rose by 2.1% year-on-year, with prices of kimchi and coffee increasing by 15.3% and 8.3% respectively, impairing residents' actual purchasing power and putting pressure on economic recovery.

Cryptocurrency, as a dollar-denominated, globally circulating, decentralized asset, has become a new path for investors to hedge against domestic currency depreciation and pursue asset preservation.

2.2 Social Psychological Reasons

According to the theory proposed by economist Samuelson that "happiness = utility/desire", when desires rise rapidly while the acquisition of utility is constrained, individual happiness will significantly decline.

• Long-term social class solidification, high competition pressure, and economic fluctuations have intensified wealth anxiety among young people, making "money" the dominant life goal. According to data from the Bank of Korea in 2024, 72.4% of respondents believe that "economic conditions" are the most significant factor determining happiness. Meanwhile, a report from the Korean Statistical Office in early 2025 indicated that 69.1% of people aged 20-39 listed "financial freedom" as their primary life goal.
• In such social sentiments, slogans like "돈이 최고야 (Money is the most important)" and "현실이 개차반이야 (Reality is crap)" are popular.
• Under the traditional paths such as employment, savings, and stock market returns failing to meet the desire for wealth, young people in the crypto market seek efficient investment options that break class constraints, which are seen as a potential avenue for achieving happiness and reversing fate.

At the same time, around the goal of "financial freedom," the consumption concept of the young population in South Korea is also undergoing profound changes, further influencing their investment preferences.

According to reports from media such as the "Asian Economy", young people in South Korea are exhibiting two typical types of consumption psychology.

• The "YOLO (You Only Live Once)" group emphasizes living in the moment and a high-risk appetite;
• The "YONO (You Only Need One)" group tends to consume rationally and values asset accumulation.

Among the YOLO generation, faced with real-life pressures and class anxieties, many young people tend to view the crypto market as a "get-rich-quick opportunity" that surpasses the stock market, breaking traditional wealth paths to achieve class ascension. In contrast, the YONO generation, considering asset preservation and hedging against economic uncertainties, gradually shifts towards increasing savings and investments. According to a 2024 Generation Z consumption trend survey, about 71.7% of respondents indicated that they would prioritize savings and asset allocation. Crypto assets have become a new investment choice due to their high returns.

Despite differing consumption attitudes, both tend to converge in their investment motivations for high-yield assets, as cryptocurrency perfectly meets their common psychology of pursuing returns and wealth growth.

2.3 Why is Korea so prosperous, and not Japan?

2.3.1 Economic Perspective: The Korean Won is relatively weak, requiring alternative paths.

• Yen: Due to its extremely low interest rates and large foreign exchange reserves, the yen is considered a safe-haven currency internationally. Even when the yen's exchange rate fluctuates, its financing advantages remain unchanged, and the market is more willing to hold yen assets to hedge against the decline risks of other markets in the face of geopolitical risks or financial turmoil.
• Korean Won: The market size is small, liquidity is weak, and it fluctuates in the same direction as global risk sentiment. Additionally, its foreign exchange reserve status is relatively weak, and there are some capital controls, making it difficult to hold the same position as the Japanese Yen.

Therefore, compared to Japanese investors, South Korean investors lack long-term trust and security in domestic currency assets, tending to seek non-local currency-denominated assets that can circulate globally, and cryptocurrency aligns closely with investor demand.

2.3.2 Economic Perspective: Traditional investments yield lower returns, seeking higher returns.

• Real Estate: South Korea's real estate investment accounts for over 50%, significantly higher than Japan's 37%, but the overall actual return rate is lower, and there are more restrictions on real estate investments.

• Stock Market: In recent years, the South Korean stock market has been relatively weak compared to Japan. However, this has been particularly evident in 2024.

2.3.3 Policy Perspective: South Korea's attitude is open, while Japan is conservative and restrictive.

2.3.4 Cultural Perspective: South Korea pursues quick wealth, while Japan focuses on steady accumulation.

• Japan: Places greater importance on "saving little by little" and "steady financial management". The sayings "一生懸命働いて、少しずつ貯める" (work hard all your life and save a little bit at a time) and "家宝は寝て待て" (treasures wait for themselves) reflect the Japanese tendency towards long-term accumulation and steady appreciation, emphasizing the values of restraint, accumulation, and patience.
• South Korea: Emphasizes "quick success" and "keeping up with trends", with concepts like "빨리빨리 (quickly)" being popular in society. People are more inclined to pursue short-term high returns, eager to achieve rapid wealth through stock trading, crypto trading, real estate, and other means.

The prosperity of the Korean crypto market is essentially the optimal trade-off made by investors in terms of macroeconomics, traditional assets, government attitudes, and cultural thinking. While Japan, as a developed country in East Asia, has a somewhat similar environment, it still falls slightly short compared to Korea's standout position in the global crypto market.

2.4 The Inspiration of the Korean Model for the Global Crypto Market

As the landscape of the crypto market in Asia quietly changes, the "Middle Way" presented by South Korea is highlighting its strategic value. Compared to a certain trading platform recently tightening regulations on local projects providing services overseas, as well as the slow pace of approval and taxation in Hong Kong and Japan, South Korea's institutional flexibility, cultural fit, and capital environment are creating new comparative advantages.

The latest policy from a certain country's financial management authority requires local projects to stop providing token services to overseas parties by the end of June, and cancels transitional support, breaking its previous "friendly to foreign" regulatory image. This sudden policy shift has led many crypto enterprises to reassess their deployment in the Asian market, turning their attention to countries with more flexible regulations and greater room for implementation. Although Hong Kong is also actively opening up, due to the complex and prudent regulatory layers, it is still difficult to accommodate a large number of project transfers in the short term.

In this context, South Korea is leveraging its local resource integration capabilities.