[Initial Insight] The Financial Services Commission Chairman's Honest Confession

[Image source=Yonhap News]

[Asia Economy Reporter Ji Yeon-jin] Recently, controversy surrounding cryptocurrency regulations has been intense. As the price of Bitcoin began to surge from the beginning of the year, everyone rushed into coin investments, and after soaring to the 80 million won range this month, it sharply declined, raising concerns about massive losses among investors. On the 22nd, Eun Sung-soo, Chairman of the Financial Services Commission, stated at the National Assembly, "Cryptocurrency cannot be recognized as a financial asset, and there are no plans to protect investors," which ignited the anger of the actively investing 2030 generation.

The government's consistent position is that cryptocurrencies are difficult to view as currency, money, or financial products, and therefore their value cannot be guaranteed. Lee Ju-yeol, Governor of the Bank of Korea, said, "Crypto assets (cryptocurrency) have no intrinsic value," and Hong Nam-ki, Minister of Strategy and Finance, also stated, "I do not consider it currency."

Since Bitcoin appeared in 2009, cryptocurrencies have attracted attention as a new payment method. Bitcoin was designed to enable global peer-to-peer financial transactions such as remittances without a central bank, based on blockchain technology. In South Korea, there are cryptocurrencies issued by local governments such as Gyeongbuk Coin, Gimpo Pay, and Seoul Coin.

These cryptocurrencies emphasize payment and settlement functions. Even major countries like the United States, Germany, and Japan, which have early legal frameworks related to cryptocurrencies, recognize the fundamental function of cryptocurrencies as currency, which is payment and settlement. In 2015, New York State became the first in the world to enact the 'BitLicense,' a specialized law for virtual assets, regulating user protection, disclosure obligations, and prevention of illegal money laundering activities. It recognized not only the payment function but also the investment aspect of cryptocurrencies.

In South Korea, the 'Act on Reporting and Using Specified Financial Transaction Information (Special Financial Information Act, or SpecFI Act)' was revised and implemented from the 25th of last month, introducing regulations related to cryptocurrencies for the first time. However, since this law is intended to regulate money laundering, it does not provide a fundamental definition of cryptocurrencies or regulations for sound cryptocurrency transactions. It only defines 'virtual assets' as electronic certificates that have economic value and can be electronically traded or transferred.

Recent statements from financial authorities indicate that they do not recognize either the payment function or the investment aspect of cryptocurrencies. They only acknowledge the economic value as defined in the SpecFI Act. The government has decided that from January 1 next year, 'other income' earned from trading cryptocurrencies exceeding 2.5 million won annually will be subject to separate taxation at a 20% rate. Deputy Prime Minister Hong Nam-ki described it as a 'speculative asset with too large and severe price fluctuations and risks.' Allowing the trading of speculative assets that are not recognized as real is no different from tolerating illegal gambling.

Recently, the decentralized finance (DeFi) market, which uses cryptocurrencies based on blockchain, is rapidly growing, and cryptocurrencies are expected to play an important role in general commerce and financial transactions in the future. This underscores the urgent need for legal frameworks regarding cryptocurrencies. Nevertheless, the government has yet to decide which department will have jurisdiction over cryptocurrencies. Chairman Eun's remark, "(Cryptocurrency is) a virtual asset that cannot be recognized, so honestly, I hope it does not enter the formal system," sounds like a candid confession that the supervisory duties have simply increased by one more task.