"Bitcoin Stumbles, Earnings Fluctuate: Upbit and Bithumb Face 'Revenue Diversification' Challenge"

# Diverging Q1 Results for Upbit and Bithumb: Fee Dependency Exposed as Primary Weakness Cost Strategies Vary, but Revenue Structures Are Sensitive to Trading Volume Regulatory Pressures and Operational Costs Highlight Need for Revenue Diversification The digital asset market experienced a slowdown in the first quarter, which impacted the performance of major cryptocurrency exchanges. Upbit maintained its profit margins through cost-cutting measures while Bithumb pursued aggressive marketing at the cost of profitability. Despite these differing approaches, both exchanges share a common vulnerability: overreliance on trading fees. Increasing regulatory scrutiny and rising operational expenses make it imperative for exchanges to evolve beyond fee-dependent revenue models for survival. # Upbit Slashes Costs, Bithumb Expands Spending: Contrasting Strategies On May 15, Upbit and Bithumb disclosed their Q1 financial results via South Korea’s Financial Supervisory Service. Upbit, operated by Dunamu, reported sales of 516.2 billion KRW ($387 million), with an operating profit of 396.3 billion KRW ($297 million) and a net income of 320.5 billion KRW ($241 million). Although sales declined 2.8% year-on-year, operating profit rose 18.1% and net income increased by 19.9%, driven by significant cost control. Compared to Q4 2022, these figures reflect a decline. Sales dropped by 31.5% from 753.8 billion KRW, operating profit fell 34.8% from 608.2 billion KRW, and net income decreased 39.1% from 526.3 billion KRW. Conversely, Bithumb saw a rise in sales but a sharp decline in profitability. The company posted sales of 194.7 billion KRW ($146 million) and an operating profit of 67.8 billion KRW ($51 million), indicating year-on-year growth of 40.9% and 9.3%, respectively. However, net income plummeted 64.1% to 33 billion KRW ($25 million) from 91.9 billion KRW, highlighting increased sales alongside declining net profits. Despite similar revenue models, Upbit and Bithumb have different cost strategies. Dunamu reduced its operating expenses to 119.9 billion KRW ($90 million), a 38.7% quarterly decrease from 195.5 billion KRW in Q4 2022, cushioning profitability despite lower trading volumes. In contrast, Bithumb increased spending on marketing and system investments, leading to a 66.6% year-on-year surge in operating expenses to 126.9 billion KRW ($95 million), up from 76.1 billion KRW. Promotions and advertising costs reached 76.5 billion KRW, with commission fees adding 23.6 billion KRW, leading to deteriorating margins. # Revenue Heavily Dependent on Trading Fees Exposes Structural Fragility Both exchanges, despite their different performance results, face the issue of dependency on trading fees. In Q1, fees comprised 98.8% of Upbit’s revenue and 100% of Bithumb’s, making them highly vulnerable to trading volume fluctuations. A Dunamu representative highlighted, “The decline in sales and operating profit was due to weakened global investor sentiment in Q1. Interest in altcoins diminished substantially, leading to decreased trading volume.” This statement illustrates how fee-centered revenue models are susceptible to market shifts. To mitigate fee dependency, Dunamu is diversifying its business through non-transaction-based initiatives. Although these ventures currently contribute modestly to revenue, they indicate a strategic shift. Dunamu’s projects include the Luniverse blockchain platform, investment and asset management services via Dunamu & Partners, and digital sheet music services through MPAG, encompassing fintech, content, and real estate funds. Sung-sik Yoon, a senior researcher at Tiger Research, emphasized, “Developing new revenue models based on financial services like digital asset-backed lending will be critical. Transitioning to revenue structures less sensitive to market fluctuations is essential for sustainable profit stability.” # Transitioning from Market-Sensitive Revenue to Stable Models: The Key to Survival Both Upbit and Bithumb are grappling with rising operational costs due to regulatory compliance. South Korea's Financial Services Commission has set stringent requirements for exchanges to enhance cybersecurity, improve compliance frameworks, and upgrade systems for transparency and fairness. During a regulatory meeting on May 15, officials discussed advanced security measures tailored to a digital-first environment, covering AI-based threat detection, supply chain security, and incident response improvements. As a result, both exchanges have increased spending on internal controls and employee compensation, adding pressure to operational margins. For Bithumb, these costs are further compounded by aggressive marketing expenditures, straining profitability. A representative from South Korea's digital asset industry stated, “As regulatory frameworks stabilize, sustaining high profit margins solely through fee-based revenue is challenging. With fixed compliance costs, like asset segregation and fraud detection systems, revenue diversification and cost efficiency are vital for short-term growth. Otherwise, defending profits will be increasingly difficult.” The future for cryptocurrency exchanges lies in reducing reliance on trading fees. Diversifying revenue streams and establishing market-stable business models are not just options—they are necessary for long-term survival amid tightening regulations and evolving market dynamics.