Read part 1 of this 2 part article here
South Korea's Uneven Relationship with Crypto
In part 1 I discussed the circumstances around the rising crypto market in Korea during the last few months of 2017, and how South Korean exchanges came to dominate the trade of cryptocurrency.
While South Korea dominated the crypto market generally, it's important to note that the degree of dominance was not even across the crypto market. Firstly, it was largely only the trade of cryptocurrency tokens. Koreans were buying and selling cryptocurrency en masse, not just as a fringe movement but very much the general public. However China, in particular Bitmain, did not lose any ground when it came to mining cryptocurrency. In dollar terms, the vast majority of new cryptocurrency is still created by mining, because the largest mining-based cryptocurrencies have by far the most market share. The four largest mining-based cryptocurrencies* in December 2017 held 80% of the marketcap share.
When looked at in this light, the phenomenon of the 2017 crypto bubble was in fact a large transfer of wealth from Korean speculators to Chinese miners, mining pools and earlier speculators. This is corroborated by the absolutely phenomenal profit reported by Bitmain, $4 billion in profit during 2017 and over $1 billion in Q1 2018.
More importantly however for our topic is there were greatly different degrees of dominance by Korea across different tokens. For example, despite Bitcoin growing faster than most altcoins in the second half of 2017, Korean exchanges were only responsible for about 10% of Bitcoin trading in December 2017. There were other coins where Korea was far more dominant, for example about 20% of Bitcoin Cash trades were on Korean exchanges.
Korea and Steem
I've shown that the Korean market was a larger influence on some coins than others, but Steem was one of the coins that was most heavily dominated by this single market. Not long after Steem was added to Upbit in December 2018, the trade of Steem and Steem Dollars were completely dominated by Korean exchanges. At times they had over 70% of the trade of Steem tokens, and to this day they are more than 50%. Aside from dominating trade of the Steem token itself, they were completely responsible for the massive over-valuation of the Steem Dollar, which was as high as $15 in December 2017. This excessive price gave holders of Steem Power far more purchasing power if they self vote, and presumably this contributed to the peak Steem price in January 2018, a month after the overall crypto bubble had peaked.
With virtually all the capital going into Steem coming from one market, this made Steem especially vulnerable to a decline in interest from South Korea.
Google Trends
Let's take a look at how search interest in cryptocurrency has gone over the last year. This is worldwide interest in Bitcoin:
As you can see there was a massive peak in interest heading into December, but it sharply declined, to the point of less search interest than even before the bubble. The same pattern is common across most cryptocurrency. Here is Ethereum and Bitcoin Cash for example:
Ouch, especially for Bitcoin Cash, but those two have not dropped in price as much as Steem.
So what about Steem? Well actually, worldwide it's not so bad. There's still about 24% the search interest in both Steem and Steemit compared to the peak in January. That's a much lower drop than most of crypto.
Things change quite a bit when we look at South Korea only though.
Ouch! Not only was Steem especially vulnerable to a decline in interest from South Korea, but South Korea has lost interest in Steem far more than the rest of the world has. They have lost interest in Bitcoin too, but Bitcoin was far less vulnerable to this.
Why Did Korea Lose Interest in Steem?
On this, I can only speculate, so take it with a grain of salt. In my view, cryptocurrency does not have much to offer people in South Korea. For the most part, this country is a well functioning economy. The banking system serves people pretty well, bank fees are not a major cost, access to banks is not a luxury, movement of capital is not as strictly controlled as some of its neighbours and there is little fear of currency problems.
The Korean rush into cryptocurrency in late 2017 has all the classic markings of a financial bubble. Retail investors and ordinary people investing money into things they don't understand, on the belief that the market will keep going up. This kind of speculative run brings a lot of capital into the space, but it is poor foundations for when the market inevitably turns. Those with little real world purpose for the tokens have no reason to hold onto them, and rush for the exit when they see that's what everyone else is doing.
Don't get me wrong, there is some benefit to Steem for South Koreans, especially as a social network. In fact, despite the declining interest, they are still the number 1 country for traffic to Steemit.com on a per capita basis. Steemit.com is ranked 376th in Korea on Alexa.com, compared to 1817th worldwide. However Steem and cryptocurrency don't solve any hard problems in Korea. They offer the chance to get rich, but that will only be a stable thing when there is demand for crypto other than to get rich.
Korea vs Venezuela
By contrast, let's take a look at Steem in Venezuela. This is a country with real financial woes. Local currency is unstable. salaries have crashed in value due to hyperinflation. It's hard to get cash, it's hard to import goods from foreign countries and it's hard to earn money. In a country like this, interest in Steemit** has held up quite well.
Not only that, but it has held up extremely well against other cryptocurrencies.
As far as I can tell, Steemit is more popular than any altcoin in Venezuela. The only crypto I can find which is more popular is Bitcoin itself. Web traffic to Steemit.com is also high.
Venezuela is not a wealthy country. We won't see huge amounts of money coming into Steem from Venezuela any time soon. However, it's places like this that are the source of real utility, real value for cryptocurrencies like Steem. When Venezuelans do fully embrace cryptocurrency, and they seem to be choosing Steem, it will be a far more stable foundation for the Steem economy.
Thanks for reading my post. I had intended to get this out yesterday, but I discovered that for me it's still technically the weekend today, as it's a bank holiday in Isle of Man. As with part 1, upvotes to anybody who can correct grammatical and syntax errors in this article.
* Bitcoin, Ethereum, Bitcoin Cash and Litecoin
** I have chosen to highlight Steemit instead of Steem because in some places, seemingly Venezuela included, people know it by the website name not the token name. "Steemit" is frequently used to refer to both the site and the cryptocurrency