The dominance of bankers and the rampant counterfeiting of Upbit may be caused by shrinking cash flow.

LOOM, IMX, HIFI, STORJ... South Korea's largest exchange Upbit is leading the charge in the crypto bear market.

Recently, many currencies on Upbit have seen a sharp rise, and the trading volume is significantly ahead of other CEXs. This situation has attracted more attention from investors than before, and many crypto market analysts believe that there is serious market manipulation on the exchange. There are even rumors that Upbit has replaced Binance and become a centralized exchange with a stronger "currency listing effect" and a "coltcoin engine". For this reason, some investors have followed the orders of the currencies with the highest daily trading volume on the exchange.

So is there really market manipulation on Upbit? Is the exchange in cahoots with it? And why is there much more speculation in the crypto market about market manipulation than in the past?

1. Upbit Effect: The Engine of Altcoins

As early as the first half of this year, there were rumors in the crypto market that there were big whales manipulating Upbit, but at that time, the number, frequency and increase of the currencies driven by it were not obvious.

However, since August in the second half of the year, especially in September, most of the tokens that were heavily held by Upbit wallet addresses have ushered in a wave of increases, and most of these tokens are "three lows" currencies with low liquidity, low market value, and low popularity.

In the deep bear phase of the crypto market, liquidity is obviously insufficient and investor losses have become a common phenomenon, and the recent profit effect driven by Upbit is particularly eye-catching. However, the rise of many currencies was first driven by the growth of trading volume and holdings on Upbit, which really makes people suspect that there are bankers behind the scenes.

1. Big whales enter the market

From market news alone, we can know that Upbit exchange wallet addresses have recently held high holdings in several currencies that are at the top of the price increase list, and are particularly ahead of other crypto trading platforms in LOOM, STORJ, and HIFI.

As of writing, statistics from the on-chain data intelligence platform arkham show that Upbit holds the largest amount of LOOM, accounting for 48.6%, and LOOM has increased by as much as 405% in the past 30 days.

Media news:

On October 9, Scopescan monitoring showed that Upbit held more than 77 million STORJ (approximately US$40 million), making it the largest coin holder.

On September 21, on-chain analyst Ember monitored that a total of 10.95 million IMX (about 8.1 million US dollars) flowed into Upbit from multiple CEXs including Binance, OKX, Bybit, Cryptocom and Gate.

On September 18, Scopescan monitoring showed that the Upbit HIFI wallet address sent a total of 13.13 million HIFI to 6 different Binance deposit addresses in the past 24 hours. However, the Upbit wallet address still holds 65 million HIFI (about 70% of the circulation).

On August 31, Scopescan monitored that since Upbit launched CYBER on August 22, the Upbit trading platform wallet address has held about 3.6 million CYBER, worth about $32.43 million. Upbit surpassed Binance to become the largest holder of CYBER, accounting for 33% of the token's circulating supply.

2. The stock price surges

If we take the rise of CYBER as the starting point, at least 6 currencies have risen sharply due to the participation of Upbit Exchange, among which HIFI has the largest increase. Tokens that have long lacked liquidity in other exchanges have also seen abnormal increases due to the listing on Upbit, such as GLMR.

Taking IMX as an example, the details are as follows:

On September 21, 10.95 million IMX (about 8.1 million US dollars) flowed into Upbit from multiple CEXs such as Binance, OKX, Bybit, Cryptocom and Gate. On CEXs such as Binance, IMX rose by 23.4% that day.

On the Upbit trading platform, IMX trading volume skyrocketed from 8 a.m. that day, driving its price to rise rapidly from $0.56 to a maximum of $1. In just two and a half hours, the spot trading volume exceeded $80 million.

3. Multiple troops withdraw

Similar to the impact of raising token prices, Upbit's transfer and reduction of tokens also has a devastating impact on the crypto market.

On September 25, Scopescan monitored that after IMX rose sharply on September 21, Upbit transferred 10.802 million IMX to Binance and OKX, worth about 4.8 million US dollars. After the transfer, the price of IMX fell by about 24%.

On September 18, Scopescan monitored that the Upbit HIFI wallet address sent a total of 13.13 million HIFI to 6 different Binance deposit addresses in the past 24 hours. On September 17, before the transfer, the price of HIFI plummeted by 61.1%.

4. Aftermath

Since many Upbit-related currencies have risen sharply in September, under the influence of the "herd effect", the tokens suspected to have been transferred from Upbit have also seen an increase.

On October 8, Lookonchain monitored that a suspected Upbit wallet had accumulated 4.71 million BNT (about US$2.54 million) in the past 11 hours, accounting for 3.3% of the total supply.

On that day, BNT saw a sharp rise, with an increase of 52.18%.

2. Multiple market making and joint market manipulation

As the exchange with the largest trading volume in South Korea, Upbit has gathered many cryptocurrency speculators, such as market makers, South Korean cryptocurrency speculators, investment institutions, and even the Upbit exchange itself.

According to Arkham data, Upbit is the largest holder of LOOM and STORJ. Through the flow into the unified wallet address on Upbit, it can be seen that the addresses with a total value of more than one million US dollars come from different wallets. From this, it can be inferred that the dealers who pull the price of tokens are different, and those who fuel the flames have chosen Upbit as a manipulation platform.

Generally speaking, only bankers have the financial resources to make continuous large-scale transfers, so it is obviously not the behavior of retail investors .

For example, AXS had frequent multiple transfers before, and the price rose, but it was not sustained. From this, it can be judged that the purchase of AXS was mainly retail behavior. However, looking at HIFI, multiple large transfers were made for many consecutive days, and the price continued to rise. It is obvious that the main force is intentionally pushing up the price of the currency, and then quickly selling it at a high price.

As a cryptocurrency trading platform, Upbit is naturally unable to promptly eradicate this obvious market manipulation behavior, but by allowing market makers to manipulate the rise and fall of these currencies, causing them to harm all kinds of investors, it is also damaging the credibility of the cryptocurrency industry.

This situation has happened again and again, which makes it hard not to wonder whether Upbit itself is related to these big whales.

As we all know, there is a "Kimchi Premium" phenomenon in the Korean crypto market. Generally speaking, the emergence of this phenomenon means that the market is overheated and investors are enthusiastic about speculating in cryptocurrencies. Previously, after Cyber ​​Connect (CYBER) went online on August 22, the premium rate once soared to 167%, which undoubtedly further boosted investors' FOMO sentiment.

The South Korean authorities' tolerance has further amplified the momentum of people speculating in cryptocurrencies. According to the latest announcement released by the National Tax Service of South Korea, virtual assets accounted for as much as 70% of the total overseas assets declared by South Korean citizens this year, and the total amount of virtual assets declared was as high as 130.8 trillion won.

Therefore, it can be said that South Korea has never lacked fertile soil for cryptocurrency speculation, and the gradually growing "leek seedlings" are gathering the eyes of countless sickles that are staring at them.

There is no definite evidence yet as to whether Upbit is really in collusion, but the exchange did have three senior executives, including the chairman, taken away for investigation on suspicion of fraudulent transactions and market manipulation.

In December 2018, Yonhap News Agency reported that the operator of Upbit was brought to trial for allegedly manipulating the market. The operator created fake member accounts and pretended to have huge assets, and then obtained about 150 billion won in virtual currency through transactions.

After investigation, they were found to have deliberately raised the market price in order to make the trading market appear prosperous, created order books worth 254 trillion won, and conducted virtual currency transactions worth approximately 4.2 trillion won.

The crypto market was also in a bear market that year, with the price of BTC falling from $197.98 million in December 2017 to around $3,250, a drop of about 83.5%. The crypto market was extremely cold.

Therefore, it is difficult for us to believe that the current phenomenon of token "chaos" on Upbit is not participated in and condoned by the exchange. It is just that the occurrence of such behavior in this exchange violates the principles of fairness and justice that financial trading institutions should have, and also deviates from the original intention of the crypto industry to pursue decentralization and Web3.

So why is Upbit, the exchange that claims to have the largest trading volume in South Korea, willing to accept the infamy that everyone is condemning?

3. Losses, hackers, reserves, and increasingly tight cash flow

Currently, Upbit is the largest cryptocurrency exchange in South Korea, founded in 2017. The exchange provides trading services for 189 currencies and 300 trading pairs, and users can trade a variety of cryptocurrencies and Bitcoin pairs in Korean won (KRW) on the platform.

Song Chi-Hyung is the CEO of Dunamu and the founder of Upbit. Through its holding company Danamu, Upbit received investment from Internet giant Kakao and partnered with US-based Bittrex in October 2017. In December of that year, the platform's average daily trading volume reached $4.5 billion, with a single-day record of $11 billion.

The company is headquartered in Seoul, South Korea. However, it began expanding into Southeast Asia in late 2018, opening a branch in Singapore on October 30. Subsequent locations also include Indonesia and Thailand, but it does not serve users in the United States.

Even such a top Korean exchange with extraordinary strength and strong background still fell into the dilemma of tight cash flow in the long bear market of cryptocurrencies, which eventually led to its suspicion and criticism by investors. Combining various data, the main reasons are as follows:

1. Loss of performance

Yonhap News Agency reported on August 25 that Upbit operator Dunamu made a net profit of 108 billion won (about 81.6 million U.S. dollars) in the second quarter of this year (April to June), but a net loss of 37.8 billion won compared to the same period last year.

In addition, the company's sales were 186.6 billion won, a year-on-year decrease of 47.9%; operating profit was 86.6 billion won, a year-on-year decrease of 68.9%.

In this regard, Dunamu explained that "sales fell due to weakened investment sentiment due to reduced global liquidity and a prolonged economic recession."

In addition, Upbit’s transaction fee is the lowest among many similar exchanges, at only 0.05%. Therefore, when it began to decline from its peak in July this year, the transaction volume dropped from $5.8 billion to around $400 million at the end of August, a drop of about 93%.

This means that Upbit’s revenue from transaction fees has shrunk by about 93%.

In contrast, the fee levels and rates of other crypto trading platforms are:

Bithumb's transaction fee is 0.15%, which applies to all trading products.

Binance transaction fee: 0.1% for order maker and 0.1% for order taker;
Huobi service fee: 0.2% for order maker and 0.2% for order taker;

The handling fee rate charged by OUYI for placing orders is 0.08%, and the handling fee rate charged for taking orders is 0.1%.

2. Hacker Attacks

On October 9, Upbit operator Dunamu released data showing that Upbit had suffered 159,661 hacker attacks in the first half of this year, 2.17 times that of last year. Upbit lost about 58 billion won (about 37 million U.S. dollars) in 2019 due to hacker attacks. Dunamu said that it has since controlled the proportion of cold wallets to more than 70%.

On September 25, fake APT tokens created by scammers were identified as real APT tokens and flowed into Upbit. The incident affected 100,000 accounts on the platform, forcing the platform to suspend AP withdrawals.

3. Reserves

For a commercial institution engaged in financial transactions, the reserve ratio will naturally not account for the company's capital ratio. However, based on the above situation, the Bank of Korea's demand for crypto companies to reserve reserves has also made Upbit less liquid in terms of cash flow.

In July this year, the Korean Banking Federation issued the "Virtual Asset Real-Name Account Operation Guidelines", requiring cryptocurrency exchanges to reserve 30% of the average daily deposits or 3 billion won (whichever is greater) as reserves in their partner banks. The maximum limit is 20 billion won. If 30% of the average daily deposits exceeds 20 billion won, a maximum of 20 billion won can be reserved as reserves.

According to data submitted by the office of Financial Supervisory Service representative Kim Hee-gon, Upbit has cooperated with K-Bank to prepare a total of 20 billion won in reserves, which is about 15 million US dollars , which is undoubtedly a considerable expense.

Since the trading behavior on Upbit is quite obvious, some investors chose to follow suit after sensing this situation, and some even listed ways to "dance with the dealer" and cash out.

First of all, in terms of news, keep an eye on the dynamic news of Upbit related currencies, such as adding positions, listing coins, etc.

The second is to refer to on-chain data platforms such as CoinMarketCap and refresh in time to check the upbit exchange trading volume ranking.

end

As a trading service provider similar to traditional securities firms, it should maintain the professional ethics of fairness and justice and safeguard the interests of investors. However, due to the laxity of local government supervision, the lag in laws and regulations, and the anti-censorship nature of the crypto market itself, CEX is more likely to reach out to market investors to profit from it when it encounters financial pressure.

However, in any case, if another leading exchange collapses due to insufficient liquidity during the long bear market, the blow to the crypto market will undoubtedly be further exacerbated, but the exchange should also keep itself clean and stop when appropriate.