As punters in crypto win and lose big by the minute, given the volatility of the virtual assets, banks are raking it in regardless of the value of the coins.
Since early 2018, anyone who wants to invest in cryptocurrencies must have an account at a commercial bank under their own name, and each exchange has to have a bank that agrees to open accounts for the traders.
NH Nonghyup Bank partnered with Bithumb and Coinone, Shinhan Bank with Korbit and K bank with Upbit.
With the rise in interest in cryptocurrencies, the banks reported a jump in deposits. While it is difficult to tell how much of the increase is the result of the boom in bitcoin and other coins, the timing and the magnitude of the increase suggest a relationship.
Total deposits at K bank, which partnered with Upbit in June last year, was 1.85 trillion won ($1.66 billion) as of second quarter of 2020. It increased to 2.68 trillion won the next quarter, and 3.75 trillion won as of the end of last year.
Investors who wish to transfer their money to cryptocurrency accounts for trading must have that money in their bank accounts first.
The increase has been sharp since the beginning of this year. Deposits totaled 4.5 trillion won as of end of January, and jumped to 6.84 trillion won as of end of February.
The number of registered customers with K bank has doubled to 3.91 million as of end of March compared to third quarter of last year's 1.69 million. A total of 1.8 million bank accounts were opened during the first quarter of the year.
“K bank has succeeded in attracting customers mainly led by those who opened bank accounts to participate in cryptocurrency trading,” said analyst Kim Do-ha from Cape Investment & Securities.
Other commercial banks with exchange relations are also benefiting from the rush.
At NH Nonghyup Bank, which partners with Bithumb and Coinone, some 570,000 accounts were newly opened during the first quarter of the year.
In case of Shinhan Bank, a partner of Korbit, a total of 339,000 bank accounts were newly opened during the first quarter of the year.
The exchanges are thriving.
Korbit turned a profit in 2020, recording a 5.8 billion won net profit. The cryptocurrency exchange posted net losses of 45.8 billion won and 12.9 billion won in 2018 and 2019, respectively.
Coinone’s revenue stood at 33.1 billion won last year, up 300 percent compared to the previous year. Bithumb posted a 149.2 billion won of operating profit last year, more than double of the previous year.
Despite the performances, cryptocurrency trading platforms are still under constant threat, as they might have to suspend their operations if they can’t find a bank to take deposits from customers.
An amendment to the Act on Reporting and Using Specified Financial Transaction Information requires all businesses dealing with the exchange, storage and management of virtual assets to register with the Korea Financial Intelligence Unit (KoFIU).
To register with the KoFIU, local exchanges must find banks willing to provide real-name accounts, which are opened by each trader using their own identity. Exchanges that fail to find a partner bank will eventually have to shut.
The amendment, in effect from March 25, gives a six-month grace period to exchanges. Some may have trouble making it.
Eun Sung-soo, Chairman of FSC, said the country views the cryptocurrency as “highly speculative virtual assets without any intrinsic value” during a meeting at the National Assembly on April 22.
“There are some 200 cryptocurrency exchanges in the country" and they "could be shut down in September,” Eun said during the meeting.
The government might strengthen regulations on cryptocurrency trading, which means that major cryptocurrency exchanges won’t be completely free from the measures.
“If the financial authority would really tighten regulations against cryptocurrencies, major exchanges are not completely free from them,” said a spokesperson from one of the four major exchanges in Korea, who spoke on the condition of anonymity. “The company has been taking a close look at the government’s movements and plans.”
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