Critics say the government and political circles have neglected the virtual asset industry and put the emphasis on regulation rather than development, fattening only the wallets of overseas virtual asset operators. Overseas, there are a variety of virtual asset products such as perpetual futures (futures contracts with no expiration date) and exchange-traded funds (ETF), but Korea has none of these products due to regulation.
According to Tiger Research, a Web3-focused research firm, about 160 trillion won flowed out to overseas exchanges from Korea last year. Demand for virtual asset investment is high, but there are few products domestically, so investors turn to overseas exchanges. The trading fees paid by domestic investors using overseas exchanges are estimated at a total of 4.77 trillion won, including 273 billion won to Binance Holdings Ltd. and 112 billion won to Bybit. That is about 2.7 times the 1.7837 trillion won in operating revenue earned last year by Korea's five major virtual asset exchanges.
So far, Korea has focused on regulation in the name of consumer protection rather than fostering the virtual asset industry. When the bitcoin frenzy hit in 2017, the government announced a blanket ban on initial coin offerings (ICO) in Korea and said violations would face criminal punishment.
In January 2018, Park Sang-ki, then Minister of the Ministry of Justice, said, "Concerns about virtual currency are growing significantly, and we are preparing a bill to ban virtual currency transactions. We are further aiming to shut down exchanges." After Park's remarks, bitcoin prices on domestic exchanges at one point plunged about 30%, and the virtual asset industry calls this the "Park Sang-ki revolt."
In 2017, Bithumb's virtual asset transaction volume ranked No. 1 in the world, but it has fallen to around the 20s now as it ran into various regulations and failed to roll out new products.
After the Financial Action Task Force (FATF) adopted in Oct. 2018 a recommendation imposing anti-money laundering and counter-terrorism financing obligations on virtual asset service providers (VASP), the government amended the Act on Reporting and Using Specified Financial Transaction Information in Mar. 2021 and introduced a VASP reporting system under the Financial Intelligence Unit (FIU) of the Financial Services Commission.
Subsequently, when tens of trillions of won evaporated within days in the Terra-Luna incident in May 2022 and FTX, the world's No. 3 exchange, went bankrupt in Nov. of the same year, the government put more emphasis on investor protection and implemented the Virtual Asset User Protection Act (phase-one virtual asset law) in Jul. 2024.
The government is currently preparing the phase-two virtual asset law (the Digital Asset Basic Act). While the phase-one law focused on investor protection and banning unfair transactions, the phase-two law aims for a systematic legal framework that encompasses both promotion and regulation of the virtual asset industry.
However, as it became known that the government, in drafting the phase-two law, would cap the equity holdings of major shareholders of coin exchanges at around 15%–20%, the virtual asset industry is pushing back hard. Currently, except for Dunamu, other exchanges all have a largest-shareholder equity stake exceeding 50%, so if the cap is enforced, they would be forced to sell down their stakes.
While Korea's virtual asset industry has been tied down by regulation, overseas virtual asset exchanges such as Binance Holdings Ltd. have created a variety of products including futures, options, and perpetual futures, capturing about 75% of global virtual asset trading volume. In the United States, a dedicated exchange-traded fund (ETF) for "stablecoin reserves" was recently launched. This indicates stablecoins are expanding into mainstream financial products. Korea is only now preparing to issue a stablecoin.
A virtual asset industry official said, "The government and political circles have virtually neglected the virtual asset industry and are now scrambling to catch up," adding, "As an IT powerhouse, Korea is the optimal environment to foster the virtual asset industry, but with no government interest, only overseas exchanges are lining their pockets."