Traditional finance is muscling in on the crypto market, potentially leaving crypto exchanges fighting for survival, a new report suggests.
As Asian regulators pave the way for Bitcoin exchange-traded funds (ETFs), established crypto platforms could see a mass exodus of customers, according to a nine-nation study of crypto trends by Tiger Research.
"Traditional financial institutions are entering the arena by leveraging familiar investment vehicles like Bitcoin spot ETFs," the report states. "To survive the next bull market, exchanges must prove they can offer services that traditional finance cannot."
Billions are flowing into crypto ETFs globally, while crypto exchanges grapple with staff layoffs, plummeting trading volumes, and slumping share prices. The situation is particularly acute in Asia, with South Korea feeling the pressure most keenly, according to Tiger Research.
South Korea, home to just five licensed crypto exchanges, all of which began as tech start-ups, is already seeing the impact of traditional finance. Securities giant Mirae Asset is reportedly close to acquiring Korbit, South Korea’s oldest Bitcoin trading platform.
Official estimates suggest up to 16 million South Koreans, almost a quarter of the population, have traded crypto on domestic exchanges. However, average daily trading volumes are declining, and Korean won deposits are gradually decreasing, Tiger Research notes.
"Investors are shifting to the stock market or overseas exchanges in search of better returns," the report’s authors explain.
The picture is similarly bleak in Japan, where new inflows have stagnated due to high tax rates that are unlikely to change before 2028. In Hong Kong, stringent regulations restrict unfettered access to crypto exchanges to high-net-worth individuals classified as professional investors.
Traditional finance firms have a distinct advantage in attracting new users, the report argues. New entrants will be able to buy Bitcoin and major altcoins through their existing banking and securities trading applications.
"Traditional finance offers a familiar experience, not necessarily new information," Tiger Research observes.
Crypto exchanges can fight back by offering services unavailable through traditional banks, such as access to decentralised finance (DeFi) and a broader range of cryptocurrencies, the firm suggests.
