South Korea Halts Crypto Regulation Efforts Amid Martial Law Aftermath

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As a researcher with extensive experience in the financial sector, particularly in the realm of digital assets and cryptocurrencies, I find the current state of affairs in South Korea disheartening yet not entirely surprising. The recent martial law crisis has undeniably diverted the attention of the National Assembly from crucial discussions regarding virtual asset regulation.

Following the martial law crisis, the National Assembly, which was set to vote on numerous crypto-related bills, has postponed all discussions about virtual asset regulation until at least the first half of 2025, according to reports. An anonymous official from the National Assembly, as mentioned in the Chosun newspaper, stated that proposals aimed at clarifying policies on Initial Coin Offerings (ICOs), real-name accounts for cryptocurrency trading, allowing local companies to hold digital assets on their balance sheets, Bitcoin spot exchange-traded funds (ETFs), and Securities Token Offerings (STOs) have essentially been put on hold due to the impeachment crisis.

Due to martial law consuming the focus of the National Assembly, it’s challenging to predict, but it appears that addressing this matter should be our priority, despite numerous bills regarding digital assets. The source suggests that the public might need to prepare for a delay, or postponement, until the political climate settles down. Before the upheaval, lawmakers were planning to make substantial moves to clarify cryptocurrency regulations and possibly align South Korea with countries like the U.S. and Hong Kong, which are expediting their own regulatory frameworks.

Unexpectedly, President Yoon declared martial law during a live broadcast on December 3. This sudden action caused immediate political and economic turmoil. He alleged that the opposition was showing sympathy towards North Korea, and as a result, he placed the nation’s legislative activities, protests, and media under military control. However, the National Assembly later annulled this order, and it was withdrawn shortly after. The ongoing repercussions have forced lawmakers to concentrate on impeachment proceedings and budget discussions, leaving the crypto agenda temporarily stalled.

One of the few crypto-related measures that narrowly escaped this legislative freeze was the postponement of a planned tax on cryptocurrency profits. On December 10, just ahead of the political upheaval, the National Assembly voted to delay the imposition of a 22% tax on gains above 2.5 million won (approximately $1,750) until 2027. Had this measure not passed by December 10, the tax would have taken effect on January 1, 2025.

The recent turmoil has caused ripples in the local cryptocurrency market as well. On December 3, Bitcoin prices tumbled on Upbit, South Korea’s largest crypto exchange. Immediately following the announcement of martial law by Yoon, Bitcoin reportedly dropped by up to 30%, from approximately 88,266,000 won ($61,600) down to as low as $61,600 before rebounding. The price fluctuations have intensified worries within the industry that prolonged political instability could undermine investor trust and prompt traders to seek out more welcoming markets abroad.

Due to the current crisis, South Korea’s primary financial regulator, the Financial Services Commission (FSC), decided to delay the release of final regulations concerning corporate cryptocurrency accounts. Originally planned to be implemented within the month, these rules are now being pushed back as the FSC refocuses on traditional financial markets such as stocks, bonds, short-term funds, and foreign currencies. This shift is in anticipation of a more politically stable environment.

Critics have consistently pointed out that South Korea’s scattered cryptocurrency regulations lack clarity for both individuals and businesses, potentially exposing them to risks. The latest postponement has raised concerns that the nation may lag behind other countries in terms of digital asset governance, as leading jurisdictions are actively strengthening their crypto regulations.

Experts in the industry and policy analysts are expressing concern that continued delays in crypto reforms may lead local blockchain companies to search for friendlier regulatory environments overseas. If discussions don’t resume soon, there are doubts about South Korea’s aspirations to be a leading player in digital finance and technological innovation.

 

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2024-12-11 16:20