Upbit & Bithumb 4Q23 Comparison
Heading back to the pinnacle vs. Was it worth it?
Korea’s Top 2 CEXs (Dunamu [Upbit] and Bithumb) disclosed their 4Q23 results on 28 March and 1 April respectively (KST).
For a comparison of 3Q23 results please refer to the following post:
1. 1Q22~4Q23 main income statement items and comments
Upbit
- Upbit’s 4Q23 sales came in at $250mn up 77% YoY and 70% QoQ. It was the highest quarterly sales in 2023 following trough levels of $142mn in 2Q23.
- Below are numbers based on local currency to get rid of the FX effect
Upbit’s 2023 OPEX was down 15% on a YoY basis; the Largest OPEX cuts came from Employee Benefits (down 89% YoY) and data management expenses (down 37% YoY). - 4Q23 OP was $182mn down +229% YoY and +134% QoQ with a 72.7% OPM which was the second quarterly highest margin since the peak of 77.7% in 2Q22 and trough of 46.4% in 2Q23.
- NP came in at $342mn which was a significant increase versus 3Q23’s $25mn, up 1,286% (not a typo) QoQ and returning black on a YoY basis.
The drastic NP enhancement was driven by gains on digital assets which accounted for 97% of total non-op gains. - The company disclosed a total of 13 equity method investments with the largest valuation losses once again coming from “Levvels” (NFT JV with Hybe) recording losses of KRW 11bn ($8.8mn).
> To sum up, Upbit’s 4Q23 sales and OP drastically improved QoQ and YoY with an OPM of 72.7% while NP increased drastically thanks to gains on digital assets (in non-op). 4Q23 on a quarterly basis was the best quarter in 2023.
Bithumb
- Bithumb recorded its worst quarterly sales since 1Q22 with $16mn in 4Q23 which was down 54% YoY and -37% QoQ.
- Below are numbers based on local currency to get rid of the FX effect.
Bithumb’s YoY total OPEX was down 4% largely driven by decreases in advertising expenses (-44% versus the previous year) but magnitude strangely mitigated by increases in sales promotion expenses (+317% YoY).
On a QoQ basis, OPEX was up 44% due to sales promotion expenses mentioned above. - Once again, for the 3rd consecutive quarter, OP stayed red at -$20mn with losses versus previous quarter increasing by $19.5mn.
- NP came in at $2mn which was an improvement versus previous quarter’s -$8mn thanks to gains on the valuation of digital assets which accounted for 54% of total non-op gains last year.
> To sum up, Bithumb recorded quarterly OP losses for 3 consecutive quarters while quarterly NP turned black.
Overall comments
- Upbit’s 4Q23 results showed drastic improvements versus previous quarter and 12 months before contrasted by Bithumb’s deterioration.
- The latter’s decreased sales and OP were probably the result of the zero-commission policy introduced on 4 October 2023.
- This was right before the overall crypto market showed drastic recoveries versus a prolonged correction period.
- At that time, Bithumb probably introduced a rather drastic measure to catch up with the widening gap versus Upbit. However, after seeing both CEXs numbers widen even more (Upbit probably cruised on overall macro recovery while Bithumb had to continue bleeding with its zero-commission policy), we could be asking: “Was it worth it?”
2. 2022 Year end and 2023 quarterly main balance sheet items
Upbit
- Upbit’s cash and cash equiv. balance increased 38% QoQ and 33% versus the last year-end in $ dollar terms.
- Worth pointing out the drastic increase of 287% increase in its digital assets’ balance vs 2022 year end 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.
- For the first time, Upbit actually disclosed customers’ KRW fiat deposit balance in one of its footnotes. This turned out to be $3,338mn as of last year end which was up +33% YoY. We believe this huge amount of “dry retail powder” waiting to buy alt coins must have increased coming into 2024 as the overall macro environment has drastically improved.
Bithumb
- On a QoQ basis, Bithumb’s main accounts increased overall from 6% to 81%. Versus last year-end, company’s dollar-denominated digital asset numbers improved by 84% driven by recovery of crypto prices. Total assets also increased +16% YoY.
- The above table and graph represent Bithumb’s cash and cash equiv. and customers’ fiat deposits on the exchange.
Worth pointing out that Bithumb’s cash and cash equivalent drastically improved (+81% QoQ and + 53% YoY). We believe this was mostly the result of better cash flows from investments whereby Bithumb partially disposed of its available-for-sale financial assets and brought in cash. - Cutomers’ fiat deposit on CEX also showed recovery (so dry retail powder on sideline waiting to buy crypto).
- We mentioned previously it would be interesting to see how 4Q numbers for customers’ fiat deposit balance are affected after the company’s zero-commission policy was implemented. Unfortunately, (despite number improvements) it is difficult to assess whether the company’s policy attracted retail cash deposits or whether this was simply the result of improved macro conditions.
Overall comments
- Both CEXs balance sheets showed QoQ and YoY improvements along with increased retail cash deposits.
- As mentioned above, difficult to pin-point whether Bithumb’s retail cash deposit increase was a result of its zero policy and/or better macro environment, but the company’s retail cash deposit growth (+46% YoY) did outpace that of Upbit (+33% YoY). However, latter has more than 5x ($3,338mn vs $667mn) in absolute number.
- The above table shows how many and how much (in $ terms) Bithumb and Upbit owned in the form of digital assets during the last few quarters.
- As of 4Q23, Bithumb held on to $88mn worth of digital assets with ETH taking the largest portion. Compared to last year-end, company’s BTC balance increased (+79) while ETH balance decreased (-1,344). On a QoQ basis, company added 45 BTCs and while getting rid of 380 ETHs. Whether Bithumb continues to sell ETH (while keeping BTC balance) remains to be seen.
- Meanwhile, Upbit held on to $765mn worth of digital assets with BTC’s portion slightly decreasing from previous quarter’s 95% to 93% but still taking by far the largest portion. Compared to the previous quarter, company’s BTC balance increased by +489 while ETH increased by +87. 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.
- Going forward, it will be interesting to see how Bithumb’s USDT balance changes as they’ve started supporting USDT (Tron)/KRW pairs while it is likely they will add a USDT market as well.
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 recorded as neither 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.
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 4Q23.
- Number 2 owned digital asset was once again XRP and not ETH; In fact, XRP accounted for 15% of total by far outpacing ETH’s 10%. Nevertheless, it is worth pointing out % portion of XRP decreased versus previous quarter’s 20% which was probably outpaced by increase in ETH price and customers’ ETH balance increasing +48% QoQ.
- Upbit customers’ continued “love” for DODGE (Ranked 4th in $ value) is also something that stands out.
- Of the top 5 (in $ value) digital assets held by Upbit customers, ETH showed the strongest QoQ increase (+48% QoQ) while XRP’s+2% QoQ was the lowest.
- Overall, top 5 customers’ number of digital assets on Upbit have all gone up YoY.
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 4Q23 (as was the case in 3Q23).
- We’ve mentioned this several times during our previous posts: what stands out is XRP’s second rank in terms of $ value (above ETH) > 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 (+1,604) while in contrast ETH decreased during the same period (-4,640); Versus last-year end, balances for both BTC increased while that of ETH decreased.
> Whether customers on Bithumb are selling ETH and/or withdrawing ETH to somewhere else cannot be determined with current information but customers’ ETH balance from Bithumb is on a decreasing trend (outflow).
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.
- Within the top 5 digital assets held by Bithumb customers (in $ value), there weren’t any significant inflows based on information provided. So we do continue to ask “Was (the zero-commission policy) worth it?”
4. Conclusion
- Above table sums up 4Q23 results and confirms what we’ve said in our previous posts: gap between number 1&2 is still prevalent and widening.
- We did mention in our previous post that 4Q discrepancy between these two will increase even more drastically given Bithumb’s zero commission policy since the beginning of October
- We continue to ask whether Bithumb’s drastic initiative worked out. Although it may have caught up on gross trading volume versus Upbit, in terms of actual sales and profit, the gap widened even more. The company ended its zero-policy starting 5 Feb. As such at least a full month of 1Q24 results will be downsized versus that of Upbit and we believe 1Q24 results will not change drastically from 4Q23.
It will be interesting to find out what happens to Bithumb’s numbers (vs Upbit) when post commission numbers are fully reflected in 2Q24. If the gap decreases significantly, we will be able to say company’s sacrifice in 4Q23 played out. On the contrary, if gap stays status quo or increases even more, then the sacrifice will be a huge strategic mistake. - Nevertheless, from a pure user’s perspective, we do appreciate Bithumb’s diverse efforts (zero commission policy + USDT/KRW support and more to come) while Upbit basically isn’t doing much (just reaping the profits riding on macro environment).
Written by Eric Yoo (Co-founder of Trinito) and contributions from Jiyon Kim (Associate at Trinito).
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) 2023 Financial Report:
https://dart.fss.or.kr/dsaf001/main.do?rcpNo=20240328001689 - Bithumb 2023 Financial Report:
https://dart.fss.or.kr/dsaf001/main.do?rcpNo=20240401004312
#Upbit #Bithumb #CEX #Dunamu #Coinbase #ETH #BTC #XRP #ADA #ETC #Altcoins #Crypto #digitalassets #valuation
