Plans to raise crypto tax allowance and legalize ICOs are welcome, but will they give South Korea the needed boost?
The latest news that the incoming South Korean president intends to boost the country’s crypto industry is encouraged. Especially given South Korea’s regional and global economic power. President Yoon Suk-Yeol intends to increase the current cryptocurrency tax allowance from around $2,000 to around $40,000. The current president, Moon Jae-in, squandered an opportunity to move the country forward with a more favorable crypto policy. This is in a country where Koreans invested more than $43 billion in crypto assets last year.
In April 2021, younger investors submitted numerous petitions complaining that crypto assets were taxed at a lower rate than stocks. This victory means that their voice is finally being heard. This is terrific news not only for the crypto industry but also for the future generation of investors. The reports from Yoon’s Presidential Transition Committee are encouraging. Nonetheless, what matters is what happens after the new president takes office on May 10th.
The Basic Digital Asset Law that will enable the recovery of funds lost through unauthorized trades and fraud is welcome. Nevertheless, a balance must be struck so the younger generation of investors (approximately 36% of the market) believe they have a stake in the system.
Will The Prospect Of An Expanding NFT Market Pay Off?
The market for NFTs in South Korea has great potential to expand in the future. This presents an opportunity for the new government to take a positive stance. While the Financial Services Commission (FSC) is said to be working on implementing NFT rules, this has yet to happen. Another possible source of frustration among investors is the difficulty of using exchanges with various travel rule systems.
There are two travel rule systems among the big four exchanges, Upbit, Bithumb, Coinone, and Korbit (which have over 95% of the crypto market share). Upbit, which controls the lion’s share of the exchange market, has implemented its own Verify VASP program, while the rest uses a different system. It’s worth noting that Yoon’s Presidential Transition Committee is also “looking to grant more cash-to-crypto licenses to crypto trading platforms in efforts to dilute the local crypto exchanges oligopoly.”
Another related concern is Upbit’s domination in the South Korean cryptocurrency market. The local banks are making a deliberate effort to enter the crypto sector. The fact that Upbit controls over 80% of the market is part of the banks’ motive to contact the government.
Dunamu, Upbit’s operator, reported a net income of 2.2 trillion won (about $1.8 billion) last year, which was up 46 times year on year. As it approached Woori Financial Group, a major banking group in the region, the news apparently “startled spectators.” According to the Korea Herald, Woori had a net profit of about 2.6 trillion won in the same period.
Banks Compete For A Piece Of The Crypto Pie
Allowing banks to take apart on an equal footing with exchanges is a significant step forward, with ramifications for competition in both regional and worldwide crypto marketplaces. Since the ICO boom years of 2017/18, which attracted multiple crypto businesses, Singapore laws have tightened. This tighter regulation has pushed companies to relocate to more crypto-friendly Dubai. Global exchange Binance, recently abandoned its application to register in Singapore in favor of establishing a presence in the UAE.
The economic implications of not moving fast enough are also demonstrated in the United Kingdom. Despite government ambitions for crypto growth, the FCA has been chastised for processing crypto license applications too slowly, preventing crypto businesses from operating. So, while South Korea is ambitious, keeping the diverse sectors on board, from crypto industry players to younger investors, will be a difficult task. The proof, as they say, will be in the pudding. While the next government may talk about plans to legalize ICOs, there may be limitations attached.
Crypto pundits like Anthony Pompliano believes that South Korea’s crypto aspirations might be a step forward on the global stage. Yoon Suk-yeol is the first head of state to announce he intends to take crypto seriously, including public safety. However, outlined plans to establish a dedicated government agency for crypto and NFTs did not make it into the final version of his campaign commitments.
