Coinone, South Korea's third-largest cryptocurrency exchange, has denied reports that it would sell a stake to Coinbase. This reduces speculation that the American exchange wants to invest more in Korea's exchange, where there is a lot of liquidity.

This shows how difficult it is for foreign exchanges to enter Korea's strictly regulated cryptocurrency market. At the same time, we see how domestic players are consolidating quickly.

Completely unfounded

The denial came after Seoul Economic Daily reported on January 25 that Coinone Chairman Cha Myung-hoon was considering selling part of his stake. Coinbase was identified as a possible buyer. The report said that executives from Coinbase planned to visit Korea this week to meet major local players, including Coinone.

"Reports of a share sale are completely unfounded," said a spokesperson for Coinone to local media. "It is true that we have received various proposals for collaboration from foreign exchanges and Korean companies, but we are only in contact with several parties to explore opportunities for expansion. Interpreting this as a share sale does not reflect reality."

The company also stated that they are open to collaborations with foreign exchanges and Korean companies. However, there are no clear plans or ongoing negotiations at this time.

Market reaction

Despite the denial, we saw rapid movements in the market after the first rumors. Com2uS Holdings, Coinone's second-largest shareholder with a 38.42% stake, rose by more than 17% on Monday. The stock temporarily reached 26,300 won but ended at 23,850 won.

The strong reaction shows a broad interest in the market. Korean crypto exchanges have become attractive acquisition targets during a wave of consolidations in the industry.

Regulatory pressure is approaching

The timing of the speculation about a sale is interesting as Korea changes its regulations. The Financial Supervisory Service (FSC) has proposed to set a cap of 15–20% for large owners' holdings as part of new laws. They are concerned that too much ownership is concentrated among a few individuals when 11 million users have accounts with these exchanges.

Chairman Cha currently holds 53.44% of Coinone. He personally owns 19.14%, and his company The One Group owns 34.30%. If the rules are implemented, he must reduce his ownership regardless of whether Coinbase participates or not.

But the ruling Democratic Party chose on January 20 not to include the limitation in the latest bill. Analysts still see that the rule may return if there are problems with concentration or security.

Wave of consolidation

Rumors surrounding Coinone come at the same time as major changes are occurring in Korea's crypto exchanges. Naver Financial and Dunamu, which operates the market leader Upbit, have approved a merger through a share swap. Mirae Asset Securities is trying to acquire the fourth largest Korbit. Binance has recently received final approval to purchase the fifth largest Gopax.

The Korean crypto market is highly concentrated. Upbit and Bithumb together hold over 97% of the market according to authorities. Coinone has about 1.5%, but CoinGecko estimates the share to be around 6.6% in January.

Coinbase has long viewed the Korean market as one of the most active in the world. A collaboration would provide them with local anchoring and functional infrastructure. However, Coinone's clear denial shows that a collaboration is not certain at this time.