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Coinbase, a San Francisco based digital currency and wallet company, was reported by the press to be valued at $8 billion based on the most recent transaction. However, Bithumb, a Korean cryptocurrency exchange, was valued at around 1/10th of the value of Coinbase in the most recent transaction. Considering the significant difference in trading volume of Bithumb versus that of Coinbase, one may ask why there would be such a noticeable disparity in the value of these two cryptocurrency exchanges.
Just looking at the figures, Bithumb’s most recent 30-day trading volume amounted to $15.8mn according to CoinMarketCap. At one point, Bithumb’s global cryptocurrency exchange market share hovered between 10-25% in December 2017 according to Coinhills, a cryptocurrency tracking and research firm. On the other hand, Coinbase Pro’s most recent 30-day trading volume amounted to $3.2mn or about 1/5 that of Bithumb.
One might cite the difference in the value of these two exchanges to the user base or more specifically the number of users. Bithumb has about 5mn users compared to Coinbase’s 20mn. However, the significant difference in trading volume implies that Bithumb’s users are much more active traders than that of Coinbase and that Bithumb generates far more trading commissions from its customer base. In terms of the trading services, Bithumb’s real-time web-based trading platform launched in 2014 and also its mobile-based trading platform launched in September 2017 command superior trading speed, rate stability, and information accuracy which has been instrumental in making Bithumb the number one cryptocurrency exchange in Korea. Additionally, Bithumb has added fintech remittance and payment services to complement its existing businesses and expand its user base. Also, similar to Coinbase which has made strategic investments in the blockchain ecosystem, Bithumb has set up an investment arm called “BTC Investment” to make strategic investments into fintech start-ups to foster synergies with its existing and future businesses.
It seems apparent from the valuation of these two exchanges that regulatory risk plays a significant part in the gap. Most of Bithumb’s users are Korean while Coinbase’s biggest customers are in the US. Korean government’s mixed stance towards cryptocurrency exchanges may be the single most important factor contributing to this discount. Last year, Korean government has banned all forms of ICO and has been behind in clarifying regulatory framework for cryptocurrency and blockchain companies to do business in Korea compared to more progressive countries like Japan, Singapore, Switzerland, and Malta. This has led to departures of many Korean companies to seek business outside of Korea.
As a result, the Korean government’s lack of support has garnered wide criticisms from its citizens. Similar to Korean government banning Uber which has created many jobs and opportunities elsewhere, consensus is shifting to nurture this innovation and there have been several laws proposed both by ruling and opposition party members to lift these restrictions. Korea has emerged as the third biggest cryptocurrency market in the world with an estimated one in three salaried workers having invested in tokens or coins. With fear of missing out on the crypto-economy revolution, Won Hee-ryong, Governor of Jeju Province, has been proactive in trying to attract foreign investments to make Jeju island an ICO hub. This is a drastic shift in government officials’ attitude towards the cryptocurrency and blockchain industry.
This is positive in the long run in ameliorating the reason for this discount. In all, the valuation gap between Bithumb and Coinbase should narrow given the reasons above. In this nascent emerging market, Bithumb has consistently delivered excellence in what it does to establish itself as a formidable cryptocurrency exchange. It is just a matter of time before we will see continued success in Bithumb expanding itself from its current geographical confines to become a global cryptocurrency blockchain powerhouse.
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