Context and Chronology

On‑chain tracking of Ethereum and Tron wallets associated with South Korea’s five largest trading venues — Upbit, Bithumb, Coinone, Korbit and GOPAX — shows a sharp retreat in dollar‑pegged holdings that reduced pooled exchange balances by roughly 55% since July, with the decisive inflection in mid‑March. That timing aligns with a pronounced won depreciation that materially raised the local‑currency payoff for converting dollar‑pegged tokens into won and redeploying proceeds onshore. Rather than a slow bleed, the movement appears concentrated: traders converted on‑exchange stablecoins into fiat and moved cash into broker accounts within days, producing a rapid reallocation of retail purchasing power into domestic equities.

Brokerage statistics corroborate the redeployment narrative: deposits measured near ₩131 trillion earlier in the observation window and fell to about ₩112 trillion, implying roughly ₩19 trillion of purchasing power was applied to stocks during the shock window. The KOSPI rally that followed has been heavily concentrated in semiconductor leaders, which have absorbed the bulk of new flows and now represent a disproportionate share of recent returns — a concentration that increases the fragility of the rotation.

How This Fits with Global Flows

At the same time, global metrics show the combined capitalization of USDT and USDC eased to roughly $258 billion from a late‑December peak near $265 billion, and spot‑ETF products recorded material intraday redemptions on some large sell days. Those institutional and product‑level outflows amplified the pressure on dollar‑equivalent liquidity, but they do not contradict the Korea story — measurement lenses differ. Global outstanding supply and U.S. product flows capture large institutions and sponsor activity, while on‑exchange wallet balances in Korea reflect a local, FX‑driven retail redeployment that compressed immediately available order‑book USD liquidity.

Analytics providers and market desks report divergent short‑window tallies for ETF outflows (intraday estimates ranged widely, e.g., high‑end BTC product figures near $818 million on a single day versus other windows showing smaller net draws). Those differences underscore a recurring theme: timing, product coverage and whether flows represent sponsor redemptions or secondary trading materially change the observed magnitude of dollar exits.

Regulatory and Policy Layer

Policy debate in Seoul compounds the market mechanics. The Bank of Korea and other officials have publicly cautioned about won‑pegged stablecoins and signaled a preference for tightly controlled issuance — preferably bank‑centric — to limit cross‑border spillovers and circumvention of capital‑flow tools. Lawmakers are still negotiating the Digital Asset Basic Act, where proposed ownership caps for exchanges, minimum capital floors for issuers and issuer‑eligibility rules remain unresolved. Those supervisory proposals, along with app‑store enforcement requiring local VASP registration, will change market structure if enacted and could make some reallocation permanent by narrowing credible issuance channels.

Market‑Structure Implications

The net effect for crypto liquidity is a measurable loss of a high‑turnover retail ‘dry powder’ pool on Korean order books. Fewer on‑exchange dollar‑pegged tokens increase slippage, widen spreads and raise the marginal cost of market‑making for Korean‑listed pairs. Exchanges’ on‑chain totals understate some off‑exchange USD pools where custodial treasuries or OTC desks may absorb flows, but even allowing for that opacity, the sudden nature and size of the rotation materially weakens local price discovery and resiliency.

Looking forward, two conditional outcomes are plausible. If KOSPI leadership persists and regulatory tightening reduces stablecoin issuance or raises onshore returns for non‑crypto assets, the outflow could become structural and keep on‑exchange USD liquidity impaired for months. Conversely, if the semiconductor‑led rally reverses or if exchanges and custodians offer competitive yields on dollar tokens, capital could rapidly reconcentrate back into crypto order books, restoring much of the lost depth.

Finally, this episode highlights a broader master lesson: macro triggers (FX shocks, ETF redemptions, policy signals) compress the timing of reallocations that were already directionally likely. Accurate diagnosis requires combining on‑chain exchange balances, product‑level fund flows and domestic banking metrics to avoid misleading conclusions from any single lens.