On the Seizure of Upbit the Korean Crypto Exchange: BUY opportunity

(This post is an English version of an article I've written in Korean, for the benefit of non-Koreans who want to know about the recent Upbit incident. This article should not be taken as an investment advice; this is my own opinion and you are responsible for your own trading.)

There was a sudden bear attack on Crypto market, thanks to the police raid of Upbit, the biggest crypto exchange in Korea. Prosecutors told the press that Upbit might have been dishonest in their business by creating fake crypto coins. They think Upbit has been practicing fractional reserve system.

My opinion is that this is not true, or if it is true, it should not hurt investors in Upbit. I believe this is a good opportunity to buy. The following are my reason for thinking as such.

1.Price dropped too quickly so we may expect bouncing back.

2.Upbit is predominantly used by Koreans, and it is located in Korea.
Therefore, its users can expect legal help from Korean government. (This might not apply to foreigners, but I'm not an expert in law. But I do think that Korean government is reasonable in this regard, and I believe they will not discriminate between domestic and foreign people.)
If the legal process takes place, it may take a long time. Yet I believe investors will be compensated for their loss, if it occurs. Especially, newly-forming Korean accounting standard on cryptocurrency is favorable; the proposed standard treats cryptocurrency as an asset, so one might receive actual coins instead of then-equivalent KRW, like in the case of Mt.Gox.
Again, I am not an expert in law, but I'm using my common sense.

3.There is enough money for Upbit users.
Currently, Upbit is 3rd in amount exchanged/24h, with 7% of total trade amount.
The total market cap of crypto is about 300 billion USD.
Also, 24h trade amount is about 7.7% of the total market cap.

Dunamu, the company behind Upbit, made about 200 billion KRW last year. (equiv. to about 200 million USD)
source (in Korean):
http://news.mk.co.kr/newsRead.php?year=2017&no=853468
http://www.ddaily.co.kr/news/article.html?no=165923
Also, crypto whales usually don't put their crypto in exchange wallets.
Although I don't know the exact proportion of whales, I guess this proportion is about 60%. That is, whales hold about 60% of total coin market cap. (Top 1000 BTC addresses hold 40% of total wealth, and top 100 ETH addresses hold 40%.)
And another thing: some non-whales also put their coins in their own wallet. Let's say about 20% of their wealth is held in their own wallet.

Now some quick back of the envelope calculations:
Assuming full reserve, Upbit needs to have 6.7 billion USD.
(Total market cap * proportion of crypto that Upbit handles * (1-proportion of whales) * (1-proportion of personal wallets))

Dunamu earned about 100 billion KRW (about 0.1 billion USD) in 2 months. Looking at Upbit's trading volume, I expect Upbit to earn about 0.3 billion USD in this year(2018).

Assuming Upbit has been going nuts and they have no coins at all (worst case). Then, Upbit needs about 20 years to earn enough money to pay back. But Upbit once said that they do not receive GAS from NEO because they have about 70% of their crypto in cold wallets.
source(Korean):
https://www.msn.com/ko-kr/money/topstories/%EC%97%85%EB%B9%84%ED%8A%B8-%EA%B0%80%EC%83%81%ED%86%B5%ED%99%94-%EB%B0%B0%EB%8B%B9-%EC%95%88%ED%95%98%EB%82%98-%EB%AA%BB%ED%95%98%EB%82%98%E2%80%A6%EA%B3%A0%EA%B0%9D%EB%93%A4-%EB%B6%84%ED%86%B5/ar-BBKjucg
Assuming that statement was true, Upbit needs at most 30% of that 6.7 billion USD. (which is about 1.8 billion USD)
That shortens 20 years to 6 years.
And, because Upbit's profit is earned in crypto(as the trading fee) we don't really have to worry about price fluctuation.

Another good thing for investors is that Dunamu is intimately related to Kakao corp., one of the most influential IT business in Korea.
(A representative of Kakao had resigned and came to Dunamu as a co-representative of that company. Kakao holds about 30% of Dunamu stock. Think: Kakao=Korean chaebol, Dunamu=Kakao's blockchain company. Kakao isn't likely to sever connection with Dunamu, giving up their heavy lead in Korea.)
Assume Kakao helps Dunamu.
Kakao has about 4 billion USD worth of wealth that they can use anytime. It earned 0.6 billion USD as operating profit in 2016 (when they did not have Upbit.)

Let's say Dunamu really did fractional reserve. But, Dunamu (and Kakao) have enough money to pay back.

4.All of the ruckus may result in nothing.
Upbit has been partnering with Bittrex from the beginning. Some Koreans, because of this, say Upbit is 'the Korean branch of Bittrex,' as in a kind of derogatory way.
Upbit has 4 markets(BTC,ETH,USDT, and KRW.) It can access Bittrex's BTC/ETH/USDT market, and it runs its own KRW market. Meaning: Upbit did not have to own all coins that people transacted within their trading platform. It is quite possible that Korean prosecutors do not understand this point, and treat this practice as fraud because Upbit did not have its customers' coin.

Although one has to have some form of evidence in order to get a search warrant, I do not believe that Korean government understands cryptocurrency well. Especially, legal branch in Korea shows both the highest level of hostility and the lowest level of understanding regarding crypto. So I don't think their evidence is as credible as other cases with a search warrant.
(Korean government once unofficially told the press that they mean to ban crypto; this came from then-minister of the Ministry of Law. They think Bitcoin and other cryptos are used as money laundering tool only. IT Ministry thinks crypto can be the next hot thing but then they think blockchain and cryptocurrency are completely separable. Your typical bureaucrats, if I may say so.)

There are other points that strengthen this conjecture.

For example, there is no delay in deposit/withdrawal process with Upbit. If you don't have enough crypto, the first thing you want to do is delay withdrawal. But this has not happened.

Also, the history of Upbit and its wallets do not really support prosecutors' case. For those of you who aren't familiar to Upbit, this exchange doesn't allow withdrawal of all coins that it handles. Only about 60% of all available crypto pairs support withdrawal of crypto to your own wallet. This adds suspicion, I know. But it used to be worse. In the beginning, coins that can be withdrawn from Upbit were only a handful; BTC, ETH, BCH, ETC, and some random crypto with market cap ranking below 50. It didn't even support XRP back then.

If Upbit really wanted to scam its customers by creating fictional coins, why should they do this gradual opening of crypto wallet addresses? Because, really, this only adds unnecessary suspicion with no real benefit. Why not just use simple Ponzi scheme? That should have been more than enough.

All in all, I believe that this Upbit incident isn't another Mt.Gox. So if the recent market drop is because of Upbit, now may be a great time to buy. I suspect there is nothing wrong with Upbit, and if there is something wrong, it probably is a small, easy-to-fix problem.

Just HODL your crypto; secure your wallets well. Do not store huge amount in exchanges, and do not access your wallets from smartphones or over WI-FI connection. Your wallet is only as secure as the weakest link of your security layers. Don't forget to diversify too, because nobody really knows which coin will be the next Amazon.com.