New virtual asset law sparks crypto exchange rate war

Over 2 percent interest rates offered on deposits

By Lee Yeon-woo

Major virtual asset exchanges in Korea have set deposit interest rates at around 2 percent in response to the implementation of the Virtual Asset User Protection Act. Intense competition has emerged among these exchanges as they vie to attract customers with more attractive rates.

As of Monday, Korbit offers the highest deposit interest rate among the five major virtual asset exchanges, with a rate of 2.5 percent. Bithumb ranks second at 2.2 percent, Upbit at 2.1 percent, GOPAX at 1.3 percent, and Coinone at 1 percent.

Deposits in virtual asset exchanges refer to cash temporarily held in accounts for the purpose of purchasing virtual assets, similar to the way securities firms manage stock deposits. Until now, there has been no interest paid on these deposits, regardless of the amount.

With the implementation of the Virtual Asset User Protection Act last Friday, virtual asset exchanges are now required to store and manage users’ cash deposits in a contracted bank and are obligated to pay interest to users on these deposits.

This led to an unprecedented late-night scramble among virtual asset exchanges, as they raised deposit rates in real time in an effort to outdo each other.

The first move came from Upbit, the country’s largest virtual asset exchange. On Friday, at 10:00 p.m., it announced a yearly interest rate of 1.3 percent. Just an hour and a half later, Bithumb, Upbit’s main competitor for market dominance, set its rate at 2 percent, promoting it as “the highest in the industry.”

Upbit quickly adjusted its rate from 1.3 percent to 2.1 percent just 39 minutes after Bithumb’s announcement. Bithumb responded immediately, raising its rate by an additional 0.2 percentage point.

Korbit upped the ante. At around 1 a.m., as the competition between Upbit and Bithumb began to wane, Korbit raised its deposit interest rate from 1.5 percent to 2.5 percent, achieving the highest rate among the exchanges.

These exchanges are competing to increase their market share by attracting customers with high deposit interest rates, according to industry officials. The annual interest rate of 2 percent offered by these exchanges is remarkably high, especially considering that the rates offered by securities firms are around 1 percent.

However, the rates may be subject to change depending on circumstances.

“For the remainder of July, we need to monitor market trends related to our company, including customer inflow. Therefore, it’s difficult to make definitive statements about the August interest rates at this time,” Korbit said. “Since deposit interest rates can clearly be a significant factor in customers’ choice of exchange, our priority will be in adopting competitive policies to attract customers.”

As of the first quarter of this year, the total deposits at the five leading virtual asset exchanges are reported as follows: Upbit at 6.3 trillion won ($4.5 billion), Bithumb at 1.6 trillion won, Coinone at 112.8 billion won, Korbit at 56.4 billion won, and GOPAX at 4.1 billion won.