Korea’s Top 2 CEXs (Dunamu [Upbit] and Bithumb) disclosed their 3Q23 results on 28 November and 14 November respectively (KST).
For a comparison of 1H23 results please refer to the following post:
1. 1Q22~3Q23 main income statement items and comments
Bithumb
- Bithumb recorded its second lowest quarterly sales (during the last 7 quarters) of $25mn in 3Q23 which was down 52% YoY but up 2% QoQ.
- Below numbers are based on local currency to get rid of FX effect.
YoY OPEX was down 18% largely driven by decreases in wages (40% of total OPEX cut), stock-option compensation (20% of total OPEX cut) and outside professional fees (16% of total OPEX cut) which were responsible for a total of 76%;
On a QoQ basis OPEX was down 6.7% which was an improvement versus previous quarter’s +2.6% QoQ increase and also the lowest quarterly OPEX number during the last 7 quarters (which shows company has been trying to reduce costs). - Despite these efforts, company stayed red with an OP loss of -$0.5mn which was slightly better than previous quarter’s loss of $2.6mn.
- NP loss came in at -$8.1mn which was a slight deterioration versus previous quarter’s -$6.5mn largely due to losses on valuation of equity method (58% of total non-op loss) and compensation expenses (39% of total non-op loss).
> To sum up, Bithumb recorded quarterly OP and NP losses for two consecutive quarters.
Upbit
- Upbit’s 3Q23 sales came in at $147mn down 28% YoY but up 4% QoQ. It was the third lowest quarterly sales after 4Q22’s $141mn and previous quarter’s $142mn.
- Below numbers are based on local currency to get rid of FX effect.
As was the case with Bithumb, Upbit’s OPEX were down 12% on a YoY basis and 9% on a QoQ basis; Largest OPEX cuts came from salaries and wages (accounting for 41% of YoY OPEX cut) and data management expenses (accounting for 48% of YoY OPEX cut). - 3Q23 OP was $78mn down 38% YoY but up 18% QoQ with a 52.8% OPM which likewise was the third lowest quarterly number after 4Q22.
- NP came in at $25mn which was a significant decline versus 2Q23’s $97mn down 75% QoQ and 80% YoY.
The drastic NP deterioration was driven by losses on digital assets which accounted for 97% of total non-op losses and up 1038% YoY (not a typo). - Company disclosed a total of 12 equity method investments with the largest valuation losses coming from “Levvels” (NFT JV with Hybe) recording losses of KRW 9bn ($6.9mn) as was the case last quarter (seems like BTS and NFT are not meeting expectations)
> To sum up, Upbit’s 3Q23 sales and OP improved QoQ and still managed to stay positive with an OPM of 52.8% while NP declined drastically due to losses on digital assets (in non-op).
Overall comments
- Both CEXs recorded QoQ improvements for sales and OP which was quite encouraging and might lead us to think the worst may be over.
- Nevertheless, it is important to highlight that in 4Q, sales and OP for Bithumb is very likely to decrease dramatically even if macro conditions have improved since it implemented a zero-commission policy since 4 October 2023.
2. 2022 Year-end and 2023 quarterly main balance sheet items
Bithumb
- On a QoQ basis, Bithumb’s main accounts decreased overall from -3% to -7%. Versus last year-end, company’s dollar-denominated digital asset numbers improved 24% driven by recovery of crypto prices. Dollar-denominated numbers tend to exaggerate main numbers’ decline as KRW depreciated more than 5% versus last year-end but in KRW terms, total assets and NAV were above par versus 2022 end.
- The above table and graph represent Bithumb’s cash and cash equiv. and customers’ fiat deposits on the exchange.
Worth pointing out that both balances tend to move in the same direction (correlation ratio of 0.99) while Bithumb’s cash burn YTD (-16%) has been greater than customers’ fiat withdrawal (-11%). - Both are down more than 60% vs peak numbers in 1Q22.
- It will be interesting to see how 4Q numbers for customers’ fiat deposit balance are affected after company’s zero-commission policy was implemented. Will Korean retail investors move part of their digital assets to Bithumb (from elsewhere) and increase fiat trading after trading fees are free?
Upbit
- Upbit’s cash and cash equiv. balance decreased 9% QoQ and 4% versus last year-end in $ dollar terms. Adjusting for FX, numbers were better given QoQ decrease was 7% and YTD even better increasing 2%.
- Worth pointing out the drastic increase of 134% in its digital assets’ balance vs year-end which probably was driven by 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 above table depicts Upbit’s quarterly deposit numbers. Unlike Bithumb, company does not clearly discern customers’ KRW deposits but states they are included in “deposits” which are classified as liabilities. We assume most of the numbers are accounted by Upbit customers’ fiat balance and can notice that compared to the same period last year, customers have withdrawn 25% of cash from Upbit and 12% versus last quarter. Nevertheless, while dollar-denominated balance shows a YTD 3% decrease, in KRW terms, number increased versus last year-end (+3%) which could mean more money is waiting to buy.
Overall comments
- Dollar-denominated numbers might give the wrong impression that both companies’ balance sheet numbers deteriorated both QoQ and versus last year-end. Nevertheless, if we strip out FX effects (KRW depreciation versus dollar), both showed improvements versus 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 4 quarters.
- As of 3Q23, Bithumb held onto $80mn worth of digital assets with ETH taking the largest portion. Compared to the year-end of the previous year, company’s BTC balance increased (+34) while ETH balance decreased (-964). On a QoQ basis, company got rid of 3 BTCs and 42 ETHs. Whether Bithumb continues to sell ETH (while keeping BTC balance) remains to be seen.
- Meanwhile Upbit held onto $475mn worth of digital assets with BTC’s portion increasing from the previous quarter’s 92% to 95% taking by far the largest portion. Compared to the previous quarter, company’s BTC balance increased by +821 while ETH increased by +400. Versus last year and this year, Upbit’s BTC and ETH balances continue to increase.
Overall comments
- 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 at 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 not recorded as assets or 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 quarterly total number and dollar-denominated value of Bithumb customers’ digital assets on the exchange.
- Top 5 in terms of $ value are BTC, XRP, ETH, ETC and BCH as of 3Q23 (as was the case in 2Q23).
- We have mentioned this several times during our previous posts: what stands out is XRP’s second rank in terms of $ value (above ETH), which means Korean retails love trading XRP.
- Worth highlighting that XRP balance continues to increase both QoQ and YTD: Retails continue to buy XRP and/or there was a net inflow to Bithumb from elsewhere.
- Customers’ BTC balance on Bithumb increased QoQ (+1,071) while in contrast ETH decreased during the same period (-12,483); Versus last-year-end, balances for both BTC and ETH decreased.
Upbit
The above table shows quarterly total number and dollar-denominated value of Upbit customers’ digital assets on the exchange.
- Top 5 in terms of $ value are BTC, XRP, ETH, DODGE and BCH as of 3Q23.
- As was the case with Bithumb, number 2 owned digital asset was once again XRP and not ETH; In fact, XRP accounted for 20% of total by far outpacing ETH’s 8%.
- Upbit customers’ continued “love” for DODGE (Ranked 4th in $ value) is also something that stands out.
- Overall, top 5 customers’ number of digital assets on Upbit have all gone up YTD with the exception of ETH; We believe the latter may have been affected by ETH staking services provided by CEX.
Overall comments
- Korean retails continue to love XRP (ranked second in $ value at both exchanges) while among other alt coins, ETC is popular on Bithumb and Dodge on Upbit.
- While Bithumb saw a mixed signal in regards to the top 5 (in $ 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 just these numbers but this must be alarming for Korea’s number 2 CEX.
4. Conclusion
- The above table sums up 3Q23 results and confirms what we’ve said in our previous posts: gap between number 1&2 is still prevalent.
- We believe 4Q discrepancy between these two will increase even more drastically given Bithumb’s zero commission policy since beginning of October.
- While other CEXs such as Coinone, Korbit and Gopax did not disclose quarterly numbers (since they don’t need to), it is very likely 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) 3Q23 Report:
https://dart.fss.or.kr/dsaf001/main.do?rcpNo=20231128000996 - Bithumb 1H23 Report:
https://dart.fss.or.kr/dsaf001/main.do?rcpNo=20231114002741
