Major cryptocurrency exchanges in South Korea engaged in a late-night frenzy, raising interest rates on deposits in real-time to attract customers.
These deposits, similar to securities firms’ stock deposits, refer to cash temporarily held in accounts for purchasing cryptocurrencies. Until now, even large deposits did not earn any interest from the exchanges. However, with the enactment of the Act on the Protection of Virtual Asset Users (Virtual Asset Act) on July. 19, the system has changed to include interest on deposits.
From late night on July. 19 to the early morning of the next day, S. Korean exchanges repeatedly adjusted their interest rates while considering the rates offered by competitors. Some exchanges raised their rates to as high as 2.5% per annum, significantly higher than those offered by regular banks.
According to industry insiders, Upbit, the biggest domestic cryptocurrency exchange, announced at around 10 PM on July. 19 that it had set the interest rate on Korean won deposits at 1.3% per annum. This was in response to the new Virtual Asset Act, which stipulates that virtual asset businesses, such as exchanges, must pay deposit usage fees to users, considering operational profits.
Cryptocurrency exchanges provide a trading environment where users can buy and sell virtual assets like Bitcoin, which are listed on each exchange, much like stocks.
As of the first quarter of this year (from January to March), the sizes of deposits held by major domestic cryptocurrency exchanges in S. Korea were substantial. Upbit had the largest amount with 6.32 trillion won ($4.5 billion). Bithumb followed with $1.1 billion. Coinone held $81.2 million, while Korbit had$40.6 million, and Gopax had $2.9 million.
The deposit interest rate is the return on the profit earned from managing customers’ money that remains in Korean won without being exchanged for virtual assets on the exchange.
One hour and twenty minutes after Upbit’s initial announcement, at 11:20 PM, competitor Bithumb announced that it had set its deposit interest rate at 2% per annum, promoting it as the highest in the industry. Shortly thereafter, another competitor, Korbit, announced an interest rate of 1.5% per annum.
This marked the beginning of the interest rate competition among exchanges. Thirty-nine minutes after Bithumb’s announcement, Upbit raised its interest rate from the initial 1.3% to 2.1% per annum. Bithumb, upon recognizing this, immediately increased its rate by an additional 0.2 percentage points from the previous 2%. Thus, the two exchanges revised their initial decisions and engaged in a competitive battle over interest rates within just two hours.
Korbit took it a step further. At 1 AM on July. 20, during a lull in the competition between Upbit and Bithumb, Korbit dramatically raised its deposit interest rate by 1 percentage point from 1.5% to 2.5% per annum, the highest among major domestic cryptocurrency exchanges.
An industry insider commented, “Since it is the early stage of the law’s implementation, exchanges seem to be raising rates for customer acquisition and marketing competition.”
With the deposit interest rates of major domestic cryptocurrency exchanges such as Upbit, Bithumb, and Korbit forming around 2.1% to 2.5% per annum, they have surpassed the interest rates of regular banks’ high-yield savings accounts, which allow free deposits and withdrawals.
According to the Korea Federation of Banks’ announcement on this day, the interest rates for freely withdrawable deposit accounts at the four major banks—KB Kookmin, Shinhan, Hana, and Woori—range from 0.75% to 2% per annum (highest rate). Some speculate that funds from regular banks, which have not found suitable investment destinations, might move to cryptocurrency exchanges.
A financial industry insider noted, “There is a possibility that idle funds parked in regular banks, unable to find appropriate investment destinations, could partially move to crypto exchanges.”