Korea’s Top 2 CEXs (Dunamu [Upbit] and Bithumb) disclosed their 1H23 results on 25 August and 14 August respectively (KST).
For a comparison of 1Q23 results, please refer to the following post:
https://medium.com/coinmonks/upbit-vs-bithumb-1q23-comparison-ffec081f36ba
1. 1Q22~2Q23 main income statement items and comments
Bithumb
- Bithumb recorded its lowest quarterly sales (during the last 6 quarters) of $24mn in 2Q23, which was down 62% YoY and 39% QoQ.
- Below numbers are based on local currency to eliminate FX effect
YoY OPEX was down 15%, largely driven by decreases in wages (55% of total OPEX cut), stock-option compensation (22%) and advertising (21%) which accounted for a total of 98%;
On a QoQ basis OPEX was up 2.6% mostly due to a +114% QoQ increase in commissions paid while this single item accounted for 29% of the total OPEX (even higher than wages, which accounted for 28%) - Company turned red for the first time in 6 quarters recording OP loss of -$2.6mn
> As seen above, OP loss was the result of higher sales decline rather than OPEX increases - NP loss came in at -$6.5mn for the first time since 2Q22 with the culprits being “other bad debt expenses” (55% of total non-op loss) and losses on valuation of equity method (40%)
- Company disclosed a total of 12 equity method investments with the largest valuation losses coming from “Asia Estate” (real-estate brokerage company) and “Bithumb Meta” (NFT-related subsidiary)
> To sum up, Bithumb’s 2Q23 results were the lowest and worst since its first quarterly NP loss back in 2Q22
Upbit
- Upbit’s 2Q23 sales came in at $142mn down 50% YoY and 41% QoQ. It was the second lowest quarterly sales after 4Q22’s $141mn.
- Below are numbers based on local currency to get rid of FX effect
YoY OPEX was up 25% driven by a surge in wages (+110% YoY, accounting for 40% of total OPEX). Another item behind OPEX hike came from stock compensations which was up 236% YoY accounting for 26% of total OPEX increase. On a QoQ basis, OPEX was up 7.5% - 2Q23 OP was $66mn down 70% YoY and 60% QoQ with a 46.4% OPM which likewise was the second lowest quarterly number after 4Q22.
- NP came in at $97mn which was a significant improvement versus 2Q22’s $58mn loss but still down 64% QoQ. The drastic YoY NP improvement was driven by gains on digital assets which accounted for 88% of total non-op gains and up 1927% (not a typo).
- Company disclosed a total of 11 equity method investments with the largest valuation losses coming from “Levvels” (NFT JV with Hybe) which accounted for 89% of the losses.
> To sum up, Upbit’s 2Q23 results were the second lowest in terms of sales and OP since trough numbers in 4Q22.
Overall comments
- Obviously both CEXs revenues still come from trading commissions and were vastly affected by overall macro environment.
- It is worth pointing out that while Bithumb tried its best to cut down on expenses, it ended up recording OP losses this quarter. On the contrary, Upbit’s OPEX numbers were both up on a QoQ and YoY basis but it still managed to be profitable with an OPM of 46.4% this quarter. This suggests that the company is aggressively hiring employees, which is noteworthy as many of its competitors are currently laying off personnel.
2. 2022 year-end and 2023 quarterly main balance sheet items
Bithumb
- On a QoQ basis, Bithumb’s main accounts decreased overall from -1% to -8%. However, we did see improvements vs. last year-end which were probably driven by the recovery of BTC and ETH prices vs. trough levels.
In KRW terms, QoQ and YTD % decreases were slightly lower (or increased slightly higher) as KRW depreciation vs. USD of -2.8% in 1Q23 and -3.5% in 2Q23 vs 2022 year-end also played a role for worse dollar-denominated % changes.
- The above table and graph represent Bithumb’s cash and cash equiv. and customers’ fiat deposits on the exchange.
It is worth pointing out that both balances tend to move in the same direction (correlation ratio of 0.98) while Bithumb’s cash burn YTD (-10%) has been greater than customers’ fiat withdrawal (-3%). - Both figures are down 57% vs. peak numbers in 1Q22. This makes sense given deteriorating results for Bithumb increases cash burn while customers tend to trade less and withdraw cash from CEXs during bear markets.
Upbit
- Upbit’s cash and cash equiv. balance decreased 13% QoQ but was up 6% vs. last year-end.
- Worth pointing out the drastic increase of 149% increase in its digital assets’ balance vs. year end (+10% QoQ) which probably was driven by the price recovery of BTC. We mentioned in our previous posts that Upbit’s digital asset balance is skewed towards BTC which is why numbers will fluctuate with price changes.
- The table above depicts Upbit’s quarterly deposit numbers. Unlike Bithumb, Upbit does not clearly discern customers’ KRW deposits but states that they are included in “deposits” which are classified as liabilities. We assume that most of the numbers are accounted by Upbit customers’ fiat balance. Compared to the same period last year, customers have withdrawn 30% of cash from Upbit and 8% versus last quarter. Nevertheless, the balance has increased compared to the last year-end, indicating that there may be more money waiting to buy.
Overall comments
- While QoQ declines might be prevalent, on a YTD basis, both are showing recoveries compared to the last year-end.
- The above table shows how many and how much (in dollar terms) Bithumb and Upbit owned in the form of digital assets during the last 3 quarters.
- As of 2Q23, Bithumb held approximately $64mn worth of digital assets, with ETH taking the largest portion. Compared to 1Q23, the company’s BTC balance decreased (-7) while ETH balance increased (+15) but both were minimal changes. Compared to last year-end, it clearly seems that Bithumb has been selling its ETH possession given balance decreased from 12,834 to 11,912 (-922 ETH) while adding or selling less BTC (461 > 498).
- Meanwhile, Upbit held on to $493mn worth of digital assets with BTC taking by far the largest portion (92%). Compared to the previous quarter, the company’s BTC balance increased by +2,799 while ETH increased by +419. Versus last year and this year, Upbit’s BTC and ETH balances continue to increase.
> To summarize, Bithumb has more exposure to ETH while Upbit is much more exposed to BTC. This is because the latter operates a BTC pair market and commissions are earned in BTC. It will be very interesting to see how ETH and BTC price changes affect both companies. A stronger ETH price appreciation will be favorable to Bithumb, while Upbit will see drastic improvements if BTC price changes.
3. Digital assets owned by Upbit and Bithumb
In this section, we will take a closer look into digital assets owned by customers in both exchanges. It is worth pointing out that accounting-wise while Coinbase records digital assets owned by customers, current accounting standards in Korea do not coerce CEXs to record these assets at all. As such both only disclose how many and how much (at quarter end) were held by CEXs on behalf of customers so these numbers are neither recorded as assets nor liabilities. However, we might see accounting standard changes to this item as early as next year forcing both companies to book these numbers as liabilities.
Bithumb
The above table shows the quarterly total number and dollar-denominated value of Bithumb customers’ digital assets on the exchange.
- Top 5 in terms of dollar value are BTC, XRP, ETH, ETC and BCH as of 2Q23.
- We’ve mentioned this several times in our previous posts: what stands out is XRP’s second rank in terms of dollar value (above ETH) > Korean retails love trading XRP.
- Worth highlighting that XRP balance increased both QoQ and YTD (especially QoQ): Retails net bought XRP (probably betting on SEC case outcome) and / or there was a net inflow to Bithumb from elsewhere (although this is less likely).
- There were more outflows for BTC and ETH (so withdrawals outside the exchange) but dollar-denominated % increased probably because the price recovery of BTC from its trough levels was higher than that of most other smaller alt coins.
Upbit
The table above shows the quarterly total number and dollar-denominated value of Upbit customers’ digital assets on the exchange.
- Top 5 in terms of dollar value are BTC, XRP, ETH, DOGE and BCH as of 2Q23.
- Similar to Bithumb, the second most-owned digital asset was once again XRP, not ETH.
- Upbit customers’ “love” for DOGE (Ranked 4th in dollar value) is also something that stands out.
- Overall, the number of the top 5 digital assets owned by customers on Upbit has increased QoQ.; Whether customers net bought and/or if this is a combination of deposits from outside cannot be clarified with cannot be determined with numbers provided above.
Overall comments
- Korean retails love XRP (both ranked second in dollar value). Bithumb customers have a stronger appetite for ETC while Upbit customers love DOGE.
- While Bithumb saw a mixed signal in regards to the top 5 (in dollar value) total number of digital assets, Upbit customers’ balance increased QoQ. Whether this can be interpreted as an exodus from Bithumb to Upbit cannot be clarified with numbers provided above, but this must have been highly alarming for Korea’s second-largest CEX.
4. Conclusion
- The table above summarizes the 2Q23 results and confirms what we’ve discussed in our previous posts: the gap between number 1&2 is widening (especially during this bear cycle).
- We believe that this widening gap is not favorable for the Korean crypto landscape, as Upbit has no rival CEX in Korea.
- While other CEXs such as Coinone, Korbit and Gopax did not disclose their quarterly numbers (since they don’t need to), it is very likely that they recorded losses.
Written by Eric Yoo (Co-founder of Trinito) and contributions from Jiyon Kim (Associate at Trinito).
#Upbit #Bithumb #CEX #Dunamu #Coinbase #ETH #BTC #XRP #ADA #ETC #Altcoins #Crypto #digitalassets #valuation
Disclaimer
This is not investment advice and is for informational purposes only. You should not construe any such information or other materials as legal, tax, investment, financial, or other advice.
Links
- Dunamu(Upbit) 1H23 Report:
https://dart.fss.or.kr/dsaf001/main.do?rcpNo=20230825000598 - Bithumb 1H23 Report:
https://dart.fss.or.kr/dsaf001/main.do?rcpNo=20230814002718
