Major overseas markets speed up to institutionalize virtual assets

“South Korea has closed a virtual asset market, too. It is almost like an “isolationist” approach,” said a former government official during an informal gathering last year, expressing concern about the country’s virtual asset field. He was concerned that there is a growing gap from the global levels although he completely understood why government officials put “investor protection” and “stability” first. Indeed, it was a surprising comment from a conservative former official but was dismissed without much consideration. However, his worries appear not merely groundless, considering that cryptocurrencies are quickly integrating into the mainstream financial landscape in key foreign markets.

In January last year, the U.S. Securities and Exchange Commission (SEC) approved trading for bitcoin spot ETFs (Exchange-Traded Funds) from 11 asset management firms. Following the approval, both individual and institutional investors alike jumped into the bitcoin spot ETF market, making the assets grow to the levels that can match those of gold ETFs in just one year. This trend has spread to major businesses and pension funds, which have begun to venture into the cryptocurrency field. Added to this, the virtual asset market will see another big tide wave coming up as U.S. President Donald Trump, who proclaims himself as the first “crypto president,” took office. Trump signed an administrative order just four days after inauguration to create a presidential working group in charge of virtual assets to strengthen the “dollar hegemony” with stablecoins whose value is pegged to another asset.

By contrast, there has been little progress in South Korea’s virtual asset market systems since the Act on the Protection of Virtual Asset Users was executed last year to protect investors and ensure the management and supervision of cryptocurrency exchanges. Investments by corporations and spot ETFs are currently blocked, so to speak. Market insiders lament that the government lacks an interest in developing virtual asset industry policies and enhancing the infrastructure system, regardless of whether regulation is to be eased or not, expressing complaints about discussions progressing at a very slow pace. For example, a 20-page document issued by the Financial Services Commission (FSC) to outline this year’s key business operational plans gives virtual assets only a single section writing, “Real-name accounts for corporations on cryptocurrency exchanges will be phased in, and a second-phase legislation will be pursued to enhance global regulatory consistency.” Since its launch last November, the virtual asset committee has had two meetings to discuss the institutionalization of systems.

Some say that such overly conservative policies pose a greater risk to the cryptocurrency market. While well-founded institutional investors find it hard to enter the market, it fluctuates with only individuals chasing quick gains. Moreover, with investments in spot ETFs held back, South Korean investors are driven to overseas bitcoin futures ETFs, which can be more volatile.

To be sure, it is essential to take a careful approach toward a new investment sector and protect investors at the same time. Nevertheless, we should pay attention to the ever-growing gap from major overseas markets, which are taking a quantum leap toward institutionalizing virtual assets.

It is a positive sign that FSC Chairman Kim Byung-hwan announced that the agency is getting ready to accelerate the pace of shifting the country’s cryptocurrency-related regulations. As of late November of the previous year, the number of virtual asset investors in South Korea was estimated at 15.59 million (based on accounts across the five largest exchanges, possibly including overlaps). As it is impossible to go against the tide of capital, it is crucial to engage in policy discussions to consider both the nature of these assets and global market changes. Too much caution may cause us to fall behind in the global rate of cryptocurrency regulation, leaving us with profound regrets about our current approach in the coming years.