South Korea Reviews Its Stance on Crypto To Become Blockchain Haven
South Korea has been closely regulating the crypto industry. First, in July 2017, the government legalized Bitcoin as a remittance method, allowing fintech companies to process up to $20,000 worth of South Korean won in Bitcoin for users. As a result, local exchange platforms were tied to the country's top financial regulator, the Financial Services Commission (FSC), which required capital of at least $436,000 to be retained, plus data processing facilities for Know Your Customer (KYC) and Anti-Money Laundering (AML) purposes in order to get the watchdog’s approval.
Thus, the Bitcoin industry in South Korea continued to grow — in July 2017, the local exchange market already processed over 14 percent of global Bitcoin trades, being the third largest market behind the U.S. and Japan — but soon it was hit with the Chinese-like blanket ban on ICOs, instituted by the FSC. The agency explained the move with rising risks of financials scams, triggering sell-offs in the market.
Further, in December 2017, the government notoriously banned anonymous trading on local exchanges (simply put, if your bank details don’t match the details you provide to the exchange, you can’t trade cryptocurrencies) after the South Korean prime minister stated that Bitcoin could lead kids “to illicit activities such as drug trading” — foreigners and minors were also banned from trading as a result of the policy; government officials were forbidden to hold or trade crypto later in March 2018. The market was stirred several times, reacting to the news. The panic intensified when an announcement emerged that Bitcoin trading was going to be banned altogether — however, it was soon dismissed by the Blue House, the executive office and official residence of the South Korean president.
Around that time, according to the country’s self-regulatory Blockchain Industry Association (KBA), the country had more than a dozen cryptocurrency exchanges, including Bithumb, Korbit and Coinone. The demand for crypto was so high that cryptocurrencies were traded at prices more than 30 percent higher than in other countries. Soon after the anonymous trading ban was announced, CoinMarketCap removed several South Korean exchanges from its listings — citing price divergence — provoking a severe dip in the market. Ripple (XRP) was particularly affected, as it saw an immediate loss of over $20 billion in market capitalization, and an almost 30 percent price drop.
On January 22, the South Korean government also announced a substantial tax levied on local crypto exchanges. Thus, all crypto trading platforms in the country are required to pay a 22 percent corporate tax and a 2.2 percent local income tax.