FTX crash to have limited impact on Korea's financial market: analysts

The Korea Times

The Korea Times

Finance

Sat, September 23, 2023 | 01:12

Cryptocurrency

FTX crash to have limited impact on Korea's financial market: analysts

Posted : 2022-11-17 16:19

Updated : 2022-11-18 16:56

The sign of the FTX Arena, home to the Miami Heat basketball team, is visible on Nov. 12, in Miami. AP-Yonhap

GOPAX announces withdrawal delays in wake of FTX scandal

By Lee Min-hyung

The collapse of once-renowned global crypto exchange, FTX, is unlikely to deal a severe blow to the overall financial market in Korea, as the crypto market meltdown sparked by the bankruptcy does not have direct links to conventional financial systems, market analysts said.

The fallout of FTX's sudden collapse is making headlines here and abroad amid heightened fears of a possible chain reaction rattling traditional financial markets. But stock and other traditional financial markets did not display serious reactions to the latest crypto fiasco despite increased aversion to risk by investors, according to analysts.

"The FTX bankruptcy appears not to have caused huge damage to the overall financial market, other than the crypto market," Hi Investment & Securities analyst Park Sang-hyun said. Cryptocurrencies' coupling with the Nasdaq is not clearly detected in the wake of the FTX scandal, which proves that the incident, in itself, will deliver limited shock to the global financial market, according to Park.

"The FTX crash was caused by its leverage risks developed by the U.S. Fed's aggressive rate hike cycle and the subsequent asset market fall," Park said. But there is a very weak link between the crypto market and the conventional financial system ― unlike the subprime mortgage crisis in 2008 that climaxed with the collapse of Lehman Brothers ― as financial institutions were seriously exposed to the risk back then due to such factors as mortgage loans, he said.

The Nasdaq and major U.S. stock indices have not shown any volatile fluctuations for the past week on expectations that U.S. inflation may have peaked. Korean stocks also did not take a huge beating during the same period when reports of the FTX fallout made global headlines.

Representations of cryptocurrencies are seen in front of the FTX logo and decreasing stock graph in this illustration taken on Nov. 10. Reuters-Yonhap

But the crypto market plummeted in the wake of the exchange's decision to declare bankruptcy. Of particular note is that already frozen investor sentiment worsened after the FTX scandal erupted.

According to data from market tracker CoinGecko, the transaction volume of Korea's top five crypto exchanges has drastically decreased during the past week. The figure for Upbit, the largest exchange here, dropped to around 1.86 trillion won as of Thursday morning. This is a drastic fall, compared to Nov. 10 when investors traded cryptocurrencies worth 5.38 trillion won.

Data for other exchanges also showed a similar drop. Investors at Bithumb, the second-largest crypto exchange here, traded cryptocurrencies worth 283.9 billion won on Thursday, a drop of more than 70 percent from a week earlier when trading volume reached 1.13 trillion won.

The prices of major large-cap cryptocurrencies also extended huge losses during the same period. Bitcoin was traded at around $21,300 as of Nov. 5, but slipped to below $17,000 as of Thursday afternoon. The price of Ethereum also fell to around $1,200 from $1,600 during the same period.

Other analysts said Korea's exchanges, however, should suffer only limited shock from the FTX debacle.

"Local exchanges are subject to regular external audits, so they have limited risks from the incident," Eugene Investment & Securities analyst Kim Se-hee said. But the latest incident is feared to trigger a bigger chain reaction across the financial sector than the Terra-Luna collapse, according to the analyst.

The biggest-ever crypto scandal is sending ripples across lending markets abroad. Genesis Global Trading, a crypto investment bank, decided Wednesday to halt redemptions and new loan offerings amid growing concerns over the FTX collapse.

GOPAX, one of Korea's top five crypto exchanges, was hit by the latest decision from the U.S. firm. The Korean exchange said Thursday it has delayed offering interest and principal payments to customers using its financial product that provides interest to customers when they deposit cryptocurrencies. The product is affiliated with Genesis Global Capital.

Financial authorities are also enhancing their vigilance against the potential impact of the incident on the local financial market.

The Korea Financial Intelligence Unit recently held a conference with leaders of the nation's five crypto exchanges.

Park Jung-hoon, commissioner of the authority, urged the leaders to establish a system to monitor each customer's asset kept on their trading platforms. The leaders of the exchanges said the latest FTX incident took place as the firm's management made ill use of customers' assets and its own FTT cryptocurrency.

mhlee@koreatimes.co.kr