South Korea’s Crypto Ecosystem: Balancing Regulations and Rapid Growth

Crypto Market Explosion

By the end of 2021, South Korea’s cryptocurrency market reached a staggering 55 trillion won (approximately $45.9 billion), according to the Financial Service Commission’s (FSC) recent study. Despite notoriously stringent regulations, the market thrived, making waves across the globe.

Regulatory Landscape

South Korea is known for its strong regulatory environment, implementing the Travel Rule and Know Your Customer (KYC) requirements in 2021. While these measures were designed to root out fraud and enhance security, they didn’t put the brakes on this blossoming market.

Transaction Trends

The FSC’s analysis revealed a daily transaction volume reaching 11.3 trillion won ($9.4 billion) across 24 licensed crypto exchanges. In an ironic twist, while the giants like Upbit, Bithumb, Coinone, and Korbit dominated with their transactions largely powered by the Korean won, a total of nine exchanges found themselves in the red, reporting net losses last year.

The Fiat Factor

Speaking of the Korean won, it accounted for a whopping 95% of all crypto transactions in the nation. The new licensing regulations enforced in 2021 required exchanges to link trades to real-name bank accounts. Unfortunately, this spelled doom for nearly 200 smaller exchanges that couldn’t secure banking partnerships.

User Dynamics

The report published by The Korea Herald shared some intriguing user statistics: there were about 15.3 million registered users across crypto exchanges. However, only 5.58 million were actively trading, with a surprising 3.1 million of them holding assets worth less than 1 million won ($850). Meanwhile, a bold 15% of traders had their crypto portfolios ballooning beyond 10 million won ($8,500).

Future Regulations

In a bid to control the industry and protect investors, the FSC proposed new regulations for token issuers in November 2021, aimed at recovering illegally obtained funds and penalizing offenders. And let’s not forget the hot topic of crypto taxation, which was on the table with plans for a 20% tax on profits—though these proposals were delayed for implementation by a year due to the hazy landscape of regulations.

NFTs and Looking Ahead

As the world turns its attention to non-fungible tokens (NFTs), South Korea is not lagging behind. The nation is gearing up to potentially establish tax regulations surrounding NFTs, which could put them at the forefront of NFT governance globally.