South Korea – A Peculiar Crypto Paradise

Bitcoin has established itself as a gateway to financial sovereignty from financial institutions as well as any one central authority. Cryptocurrencies yield high financial returns for investors since they belong to a substrate of the economy. Stock prices are dependent on speculation as well as news events, and the prices of cryptocurrencies are similarly affected, if not even more susceptible to such external factors. As nation-states have embraced digitization in their financial systems, theyve encountered a variety of irregularities pertaining to cryptocurrency.

How cryptocurrency is socially and economically perceived by countries is in a constant state of change. Every article of news such as “China To Ban Crypto,” or “Tesla Accepts Bitcoin,” directly affects crypto market prices. Related to the effect of such current events, opinions held on bitcoin are in a constant state of flux. South Koreas views on Bitcoin and crypto have fluctuated between 2017 and 2021, ranging between “zero,” and “hero,” in recent times. With that said, cryptocurrencies in South Korea stand in contradiction to the global market. But why is this？

A Strange Inclination To Cryptocurrency

In 2017, the Central Bank of South Korea stated in a research paper that cryptocurrencies and fiat issues currencies could coexist. However, they have emphasized that crypto still holds no intrinsic value.

Crypto is appealing to people in South Korea because they are acutely aware of shifts in the political and economic climate of the country, mainly because they share a border with Kim Jong Un. What‘s more, according to reports from both 2018 and 2021, the job market for young adults is still relatively weak, offering limited returns or financial incentives. South Korean’s thus turn to cryptocurrencies, which exist in a market that is shielded from the influence of external pricing.

The unusual price movements of Bitcoin in South Korea created a new term, used as a reference for the gap between the prices of Korean exchanges and those on the global market, called “Kimchi Premium.” The gap was observed as early as 2017, when Bitcoin traded as high as 44% higher than the global market average. The gap was evident in the case of Ethereum as well, which traded with a premium of over 50%. In 2021, the gap is still apparent as it has maintained a Bitcoin price difference of $5,000 higher than U.S. Exchanges.

Korean exchanges are reasonably isolated from external factors. Their hesitation to adopt stablecoins is considered a significant setback for cryptocurrency adoption in the nation because of KRWs lack of volatility. As data from 2017 indicates, South Korea had the leading Ethereum-to-fiat exchange rate on the global market. Despite not using stablecoins, reports have highlighted just how extraordinary trading cryptocurrency in South Korea really is, with Dogecoin experiencing a daily trade volume of $13 billion, compared to the monthly FX trade volume of just $7-8 billion.

On the Flipside

• The South Korean government stated as early as 2017 that cryptocurrencies have no intrinsic value.

• Due to strict regulations in the country, DeFi and CeFi have to coexist in a hybrid form.

• Starting next year, cryptocurrency investors will have to pay 20% tax on their capital gains.

Stress vs Financial Gains

The South Korean government has enforced stricter guidelines regarding cryptocurrency trading, as well as its usage within the country. Their recent actions include preventing money laundering through (AML) checks, and making anonymous coin transactions such as Monero or Zcash illegal, as of March 2021. Korean exchanges also delisted privacy coins in 2018, following the ban on “anonymous crypto trading.” Although they do not allow the trade of such privacy coins, they do continue to allow the trade of meme coins.

Recent reports highlight that 63.3% of South Korean traders are experiencing “psychological side effects” as a result of the volatility in prices. In a 2018 article by Venture Beat, the author stresses that high fluctuations in 2017 created “emotional havoc” for traders, which supports recent findings. Despite this, crypto represents an affordable way to invest, although only 40% of those who have invested in this way have generated profit.

South Koreas cryptocurrency craze is affecting more than just their young college students. A survey conducted in February indicates that 40-50-year-olds represent nearly half of the customer base of the top exchanges. In March, young adults between 20 and 30 years old accounted for almost two-thirds of new exchange sign-ups, likely generated by widespread FOMO, driven by media and other digital mediums.

Regulatory measures in South Korea are set to be reinforced even further as they reiterate their stance from 2017, stating, “a crypto asset is an asset that has no intrinsic value.” The result being that such crypto regulations build pressure on outside competitors, forcing their exchanges to halt South Korean operations. In 2020, Binance Korea was forced to cease operations due to a law shattering order, outlawing book sharing in the country. Additionally, in March 2021, OKEx ended operations as a result of the new AML laws which were put into place.