[Issue! Q&A] Cryptocurrency Transactions Reaching 445 Trillion Won in Two Months... Protection Policies Remain 'Stagnant'

The Government Regulates Speculative Products... Capital Gains Tax Applies from Next Year if You Make Money

[Asia Economy Reporter Park Jihwan] In the first two months of this year, the total trading volume of virtual currencies (cryptocurrencies), including Bitcoin, has exceeded 445 trillion won. This figure has already significantly surpassed last year's trading volume of 356.2056 trillion won. During this period, the average daily trading volume approaches 8 trillion won. The number of registered members who have traded virtual currencies at least once has reached 1,592,000. This reflects a broadening investment base, but criticism arises that domestic policies for protecting virtual currency investors remain stagnant. Although the government recently introduced revised policies such as the amended Act on Reporting and Using Specified Financial Transaction Information and tax laws, investor protection measures like liability for damages by virtual currency exchanges are absent, fueling ongoing controversy.

Q. How does the government currently view the asset nature of virtual currencies?

A. The government's stance toward virtual currencies has remained consistent. It strictly does not recognize virtual currencies as financial investment assets or currency within the institutional framework but classifies them as speculative products. On January 11, 2018, Park Sang-ki, then Minister of Justice, harshly criticized virtual currencies at a New Year's press conference, likening them to "worthless stones." Even three years later, the government maintains a negative position on virtual currencies. On the 23rd of last month, Lee Ju-yeol, Governor of the Bank of Korea, stated at the National Assembly's Planning and Finance Committee plenary session, "The current Bitcoin price seems to be an abnormal surge. It is difficult to understand why Bitcoin prices are so high," expressing the view that Bitcoin lacks intrinsic value. This means that virtual currencies are not recognized as institutional financial products like stocks or derivatives but are regarded as speculative activities.

Q. Are taxes imposed on profits from virtual currency investments?

A. Although not recognized as financial assets, profits from virtual currency investments will be subject to capital gains tax starting next year. While not financial assets, these are considered one-time earnings similar to lottery winnings and classified as miscellaneous income. Miscellaneous income refers to income that arises temporarily or incidentally, unlike regular income such as earned income or interest income. If one earns more than 2.5 million won in a year from selling virtual currencies, a 20% tax is imposed on the capital gains. For example, if a total of 10 million won is earned from virtual currency trading in a year, 1.5 million won (20% of 7.5 million won after excluding 2.5 million won) must be paid as tax. In contrast, for stocks subject to capital gains tax from 2023, no tax is levied on income under 50 million won annually.

Q. What about the amended Act on Reporting and Using Specified Financial Transaction Information effective on the 25th?

A. Through the amended Act on Reporting and Using Specified Financial Transaction Information, effective March 25, the government will impose anti-money laundering obligations on domestic virtual currency exchanges at a level comparable to the general financial sector. Exchanges must register with and undergo screening by the Financial Intelligence Unit (FIU) under the Financial Services Commission and report any transactions suspected of involving illegal assets to the FIU when dealing with customers. Exchanges are required to implement real-name verification deposit and withdrawal account services and obtain information security management system certification to prevent money laundering. Virtual currency exchanges cannot receive investors' funds into their corporate accounts without real-name accounts at commercial banks. If a virtual currency exchange uses a specific bank, customers must conduct financial transactions through accounts at the same bank.

Q. What are the countermeasures against illegal issues such as price manipulation and excessive fees?

A. Current laws do not yet provide legal grounds to address unfair trading practices such as price manipulation or excessive fee setting by virtual currency exchanges. In 2018, executives of the virtual currency exchange Komid were punished under criminal law for falsifying virtual currency balances in the system to simulate actual trading. This is because allegations of "price manipulation" under the Capital Markets Act apply only to trading of listed securities or on-exchange derivatives. Voices are emerging that if virtual currencies are subject to taxation, investor protection measures comparable to those in the financial sector should also be implemented. In January, Lee Ju-hwan, a member of the People Power Party, proposed an amendment to the Act on Reporting and Using Specified Financial Transaction Information to impose obligations on virtual currency exchanges to prohibit unfair trading such as price manipulation and prevent illegal outflows of virtual assets, with liability for damages and fines for violations.