Global Cryptocurrency Regulation Vol 4: South Korea

Summary

1. A youth-driven speculative boom led to tighter regulations

In South Korea, cryptocurrency investment surged around 2017, particularly among younger investors. Concerns over market overheating and illicit activities led to the introduction of regulations such as the “one exchange–one bank” rule. However, this regulatory tightening is also seen as having contributed to a decline in political support among younger generations.

2. Regulatory review aims to open the market and boost competition

The system is now being criticized for fostering market concentration and creating barriers to new entrants, prompting discussions around its removal or relaxation. Measures such as allowing derivatives trading and introducing corporate accounts are expected to attract capital inflows and stimulate competition among exchanges.

3. A comprehensive shift toward integrating digital assets into the regulatory framework

South Korea is moving toward balancing regulation and growth through initiatives such as the Digital Asset Basic Act, the introduction of security tokens (ST), and the approval of ETFs. Efforts are also underway to redesign AML frameworks and align with international standards, aiming to evolve into a globally competitive regulatory model.

In South Korea, the 'one exchange, one bank' system, which requires each cryptocurrency exchange to partner exclusively with one designated bank, has effectively become entrenched. Under this restriction, only major exchanges (Upbit, Bithumb, Coinone, Korbit, Gopax) have managed to secure partnerships with banks.

This regulation originated in December 2017 when financial authorities mandated exchanges to integrate real-name accounts to prevent money laundering, among other objectives. At the time, cryptocurrency trading had rapidly expanded, particularly among the youth, prompting the government to implement stricter regulations to curb the misuse of cryptocurrencies and excessive speculative frenzy. The regulatory tightening from 2017 to early 2018 is also analyzed as a factor contributing to the youth's disengagement from the government.