As the government announced plans to tax capital gains on virtual assets starting next year, the Basic Act on Digital Assets, which would comprehensively regulate the virtual asset industry, has not even been submitted to the National Assembly as a government bill. With the bill delayed, firms preparing for business are on the brink of collapse. The industry complains that "the government has no intention of fostering the industry and only thinks about collecting taxes."
According to the industry on the 25th, 10 bills related to digital assets are pending at the National Policy Committee, but the subcommittee for bill review has not held substantive deliberations. Since the Basic Act on Digital Assets bill was introduced in June last year by Min Byung-deok of the Democratic Party of Korea as the lead sponsor, proposals from both ruling and opposition lawmakers have piled up, but the government bill has yet to be submitted. Lee Eog-weon, chair of the Financial Services Commission (FSC), said at a National Policy Committee work report on Aug. 29, "We have prepared a draft, but there are some areas of slight disagreement. With the committee lineups for the second half now in place, we will move as quickly as possible."
The financial authorities had said that when the Act on the Protection of Users of Virtual Assets (phase-one law) took effect in July 2024, they would immediately begin phase-two legislation, but it was pushed to early this year due to disagreements late last year over regulating the issuance of won-denominated stablecoins. When the government included the initiative in its second-half economic growth strategy in July this year, it seemed to regain momentum, but the matter rolled over to the regular National Assembly next month with no substantive discussion at this month's extraordinary session.
The ruling party is aiming to introduce a consolidated bill in September, but considering the October national audits and the November–December budget review schedule, the prevailing view is that it will be hard to guarantee passage within the year.
What is immediately holding things back are the issuer of won-denominated stablecoins and limits on the equity stakes of major shareholders in virtual asset exchanges. The financial authorities prefer issuance centered on banks with anti-money-laundering frameworks in place, while the industry is calling for broader entry by nonbank operators. It has not been settled whether regulatory authority will lie with the Financial Services Commission or the Bank of Korea. For the equity stakes of major shareholders in virtual asset exchanges, caps of 15%–20% are being discussed, but the industry is pushing back, calling it an infringement of property rights.
While Korea's virtual asset industry has been stuck in place for years, overseas exchanges have continued to evolve by rolling out new products. The latest buzz in the global asset management industry is "staking," in which virtual assets are deposited to contribute to network operations and earn rewards. With ETPs (exchange-traded products) emerging that go beyond simple holding to capture staking revenue, a new competitive factor has arisen for traditional ETFs (exchange-traded funds). Structures that distribute on-chain revenue to investors in cash are also appearing one after another.
Grayscale, a virtual asset manager, distributed about 120 won ($0.083178) per share in January through its "Ethereum Staking ETF (ETHE)," while BlackRock's "iShares Staked Ethereum Trust ETF (ETHB)" began with about 23 won ($0.015237) per share in June and followed with $0.032059 in July and $0.032499 in August.
Korea does not even have a legal status for staking and lending (deposit) services. Because the Act on the Protection of Users of Virtual Assets has no provisions governing these, operators must run services outside the system. Spot ETFs for virtual assets cannot be launched at all by domestic managers because the Financial Investment Services and Capital Markets Act limits underlying assets to financial investment products and domestic and foreign currency. The government said on Aug. 14 that it would push to amend the Financial Investment Services and Capital Markets Act, but a host of tasks remain to be set, including criteria for selecting constituent assets, price determination, and custody infrastructure.
With institutional gaps compounded by a bear market in virtual assets, the domestic virtual asset market is contracting. In the first half of this year, transaction value at the five major won-market exchanges was $366.5 billion (about 506 trillion won), down 54.6% from a year earlier, and trading volume in May hit a 30-month low.
In the second half of last year, exchanges' operating profit was 380.7 billion won, down 38% from the first half (617.8 billion won). Because about 98% of exchange revenue comes from transaction fees, a decline in transactions leads to weaker results.
It is also hard to find a breakthrough with new businesses. It has been over a year since the financial authorities laid out a roadmap to gradually allow corporate real-name accounts starting with listed corporations and professional investors, but guidelines have yet to be issued. Even a discussion by the Virtual Assets Committee, slated for the end of May, was canceled.
Companies preparing services such as custody, tokenized securities, and stablecoin payments are facing growing burdens. For these services, the types of business must be defined in the basic act before license applications are possible. A company official said, "We are hiring and preparing to offer services as soon as the law takes effect, but we have no idea when the market will open, so we are literally on the verge of collapse."