Korea remains passive in embracing digital currency

By Lee Min-hyung

The so-called “crypto craze” swept through the country a couple of years ago with the majority of people talking about bitcoin. However, the vitality of Korea’s cryptocurrency industry is being questioned with a set of regulations that are driving market players into a corner.

The government said early on that it would consider legislation to bring cryptocurrencies into the mainstream and review if and how to apply taxation to them. But no such steps have been taken yet.

As cryptocurrency trading gathered force, the country was quick to move forward with applying plans requiring real-name accounts and introducing a ban on initial coin offerings (ICOs) back in 2017. But three years later, the country’s tax authorities said detailed plans on how to apply taxation or better navigate cryptocurrency markets have not materialized.

This is contradictory to steps taken by many developed countries. The Korean government’s apparent laziness with respect to providing specific legal foundations for various virtual assets is raising concerns that the nation may end up lagging far behind the looming paradigm shift in the global financial transaction industry.

Despite the repeated “pro-virtual asset” status by regulators, the Financial Services Commission (FSC) is maintaining its hardline stance.

Korea’s largest cryptocurrency exchange, Bithumb, was put up for sale, after facing a backlash for expanding its business via an IPO. Up until recently, Bithumb planned to be listed on the nation’s securities market, but dropped the plan amid tough regulatory hurdles. As Bithumb cannot acquire listing qualifications from the Korea Exchange and financial authorities, the operator has given up on the plan.

With the nation’s largest cryptocurrency exchange operator facing continuous backlash, domestic and foreign investors are flocking to other markets. Interestingly, this is not the case for other major developed countries. Japan is one of the most active players in terms of embracing and encouraging growth of the market.

It’s too early to say some developed countries are cryptocurrency enthusiasts but they are actively taking steps to meet it head on.

SBI Holdings, one of Japan’s financial conglomerates, has recently announced its plan to launch a cryptocurrency derivative called Contracts for Difference (CFD). Popular cryptocurrencies ― such as Bitcoin and Ripple ― are partnering with the drive from SBI. But in Korea, such crypto assets are stigmatized as an “unreliable source of speculation” by financial authorities.

The United States is also welcoming growth of the cryptocurrency industry. A number of cryptocurrency mining firms have been listed on the Nasdaq, and emerging players also share their plans for IPOs there.

Kraken, a cryptocurrency exchange based in the U.S., has even won a banking license in the state of Wyoming, allowing the country’s first cryptocurrency company to become a bank there.

The decision by the U.S. government displays its strong willingness to support growth of the cryptocurrency industry.

The U.S. and Japan have also recently been stepping up their efforts on research of the issuance of the central bank digital currency (CBDC). With the rise of the cryptocurrency in recent years, CBDC has become a major topic for discussion among central banks across the globe.

CBDC and the privately issued cryptocurrencies are different in that the former’s face value is fixed, while that of the latter cannot be expressed at a certain ratio.

The Bank of Korea (BOK) is also keeping a close watch on what the future course of private cryptocurrencies will be like. The central bank is the only authority in terms of doing research on the digital currency, but this also has little to do with the industry-wise growth of cryptocurrencies here.

One point is that the BOK is still in the process of defining crypto assets, determining which type of virtual assets should be taxed and how crypto exchanges should and or would apply taxation.

The BOK was in works on potential issuance of its own CBDC by the end of 2021. It did not take the paradigm shift in the global payment industry seriously until the end of last year, but shifted its stance recently in consideration of steps from such developed countries which all started embracing private cryptocurrencies and enhancing research on the use of cryptocurrencies in the public sector.

“The rise of privately issued digital currencies may affect financial stability and monetary sovereignty,” Yun Sung-guan, payment systems research team leader at the BOK, said in a recent digital asset seminar. “We are strengthening research capabilities to brace for the era.”

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