On December 3, 2024, South Korean cryptocurrency exchanges, including Upbit and Bithumb, experienced significant service disruptions due to an unexpected declaration of martial law by President Yoon Suk Yeol. The declaration, made during a televised address, was in response to escalating political tensions, which triggered widespread panic in financial markets, including cryptocurrency trading platforms.
Background on South Korean Crypto Markets and the Kimchi Premium
South Korea has long been a key player in the global cryptocurrency market. The country’s tech-savvy population and strong digital infrastructure have made it one of the largest crypto trading hubs. A notable phenomenon in the South Korean crypto landscape is the “Kimchi Premium,” where cryptocurrency prices in South Korea often trade higher than global averages. This premium arises from high local demand, limited supply, and regulatory barriers preventing arbitrage.
However, the country’s crypto sector has also faced challenges, including regulatory scrutiny and concerns over market manipulation. The events of December 3 underscore the vulnerability of crypto exchanges to unexpected political and market disruptions.
Impact of Martial Law Declaration on Crypto Markets
The martial law declaration led to a temporary 32% drop in Bitcoin’s price in South Korea, as panic selling and heightened trading activity overwhelmed local exchanges. Upbit, South Korea’s largest cryptocurrency exchange, reported a surge from its usual 100,000 concurrent users to over 1.1 million. Similarly, Bithumb and Coinone experienced a dramatic increase in user activity, with each platform exceeding 500,000 concurrent users.
This unprecedented demand caused server outages and trading disruptions. Upbit’s services were down for 99 minutes, while Bithumb and Coinone experienced 62 and 40 minutes of downtime, respectively.
Largest Crypto Compensation in South Korea’s History
In response to investor losses caused by the downtime, Upbit has agreed to compensate affected users with 3.14 billion South Korean won ($2.1 million) across 596 cases. Bithumb will provide 377.5 million won ($262,000) in compensation for 124 cases. These payouts represent the largest compensation effort in South Korea’s cryptocurrency history.
Negotiations between the exchanges and affected investors are ongoing, and the final compensation amounts may increase. Notably, other exchanges like Coinone, Korbit, and Gopax have stated that they are not liable for investor compensation due to their shorter service disruptions.
Regulatory and Preventative Measures
South Korean financial authorities have resumed on-site inspections of cryptocurrency exchanges as of December 20, aiming to prevent similar incidents in the future. Exchanges are now expected to adopt measures such as server expansions, cloud migration, and improved emergency response plans (Business Continuity Plans or BCPs) to ensure platform stability during periods of high demand.
A spokesperson from the Financial Supervisory Service (FSS) emphasized the importance of these measures: “We are checking whether the exchanges properly comply with their implementation plans, such as expanding servers and improving internal processes. We also plan to check whether they are responding well to complaints, including whether compensation standards are well set.”
Looking Ahead: Strengthening South Korea’s Crypto Ecosystem
The recent events highlight the need for robust infrastructure and regulatory frameworks to support South Korea’s burgeoning crypto industry. While the compensation efforts by Upbit and Bithumb demonstrate a commitment to investor protection, the outages reveal gaps in the existing system that must be addressed.
South Korea’s proactive approach, including regulatory oversight and mandatory infrastructure improvements, could serve as a model for other countries facing similar challenges in the crypto sector. Additionally, these measures may help stabilize the local market, mitigate risks associated with the Kimchi Premium, and build investor confidence.
As South Korea continues to solidify its position as a global cryptocurrency hub, balancing innovation with regulatory safeguards will be key to ensuring the long-term success and stability of its crypto ecosystem.
