[2024 Virtual Assets Review] Bitcoin Returns... Korean Regulations Continue

Bitcoin Surpasses $100,000, Reaching All-Time High
Only 'User Protection Act' Exists in South Korea's Virtual Asset Market
Overseas Exchange Expansion Fails... Limited Competition

This year, the virtual asset market reached an all-time high, fueled by the 'Trump effect.' Bitcoin more than doubled after the U.S. presidential election, hitting a yearly peak of $108,268.45, conquering the 'dream $100,000' milestone. However, in the Korean virtual asset market, limited competition persisted due to stringent regulations that excluded the entry of overseas exchanges.

Bitcoin at $92,900... Up 121% in One Year

According to the global virtual asset market tracking site CoinMarketCap, as of 8:13 a.m. on the 30th, Bitcoin was priced at $92,902.91. Although it fell 2.34% compared to the previous day, it recorded a 121.93% increase compared to one year ago. The virtual asset industry is optimistic that the Bitcoin rally will continue until January 20 next year, before President-elect Trump’s official inauguration.

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The start of the Bitcoin rally was the launch of Bitcoin spot Exchange-Traded Funds (ETFs). On January 10 (local time), the U.S. Securities and Exchange Commission (SEC) approved the listing of 11 Bitcoin ETFs, including those from BlackRock and Grayscale. Bitcoin spot ETFs traded over $4.6 billion (approximately 6.1791 trillion KRW) on the first day alone. The SEC’s approval of Bitcoin spot ETFs and their integration into the regulatory framework is seen as a new turning point.

Crucially, the price of Bitcoin more than doubling was largely due to the victory of Donald Trump, the 47th President of the United States, who proclaimed himself the 'President of Virtual Assets.' In fact, Bitcoin’s price was around $67,000 on November 4, the day of the U.S. presidential election, but rose 61.6% by December 17, when it hit the yearly high of $108,268.45. President-elect Trump also introduced the 'BITCOIN ACT,' a bill proposing to hold Bitcoin as a strategic asset for the next 20 years.

Progress in Korean Virtual Asset Regulation... Urgent Need for Systematic Industry Law

The Korean virtual asset market made progress with the enforcement of the 'Act on the Protection of Virtual Asset Users' in July, but it still faces criticism for heavy regulation. The Act focuses more on user protection than on industry regulation. Users’ deposits must be safely stored and managed by banks, and virtual asset service providers must pay deposit usage fees to users. Providers must separate their own virtual assets from users’ assets and bear responsibility for incidents caused by hacking or system failures. A regulatory framework for unfair trading practices such as market manipulation was also introduced.

While the Act is encouraging in that it contains the first domestic legal definition of virtual assets, there are calls for a systematic regulatory framework that considers the individual characteristics of virtual assets. Lee Seok-woo, CEO of Dunamu, said at the 'Digital Economy 3.0 Forum' held at the National Assembly on the 20th, "The next Trump administration’s virtual asset promotion policies are underpinned by a monetary strategy to solidify the U.S. dollar’s hegemony. Advanced financial countries like Japan are preparing for this, but Korea remains stuck at the regulatory stage, so urgent measures are needed." Kim Byung-yeon, professor at Konkuk University Law School, also emphasized the need for a segmented regulatory system, stating, "Current laws broadly define virtual assets but do not sufficiently reflect the diverse types of digital assets." He argued that appropriate regulations are needed for various digital asset types such as security tokens and payment stablecoins.

Overseas Exchanges’ Entry into Korea Fails... Few Exchanges Enjoy Benefits

From the industry perspective, there is a perception that regulations are too strict. Exchanges like Crypto.com and Binance attempted direct or indirect entry into Korea but failed to pass approval within the year. Domestic virtual asset exchanges must register as Virtual Asset Service Providers (VASPs) with the Financial Intelligence Unit (FIU) of the Financial Services Commission. Failure to comply results in being considered an unregistered illegal virtual asset business operator.

Within limited competition, some Korean won-based exchanges saw increased trading due to the 'FOMO (fear of missing out)' caused by the Bitcoin rally. Won-based exchanges are platforms where virtual assets are bought and sold using Korean won, and only five exchanges (Upbit, Bithumb, Korbit, Coinone, and Gopax) operate domestically. According to virtual asset information provider CoinGecko, Upbit’s market share in the won-based virtual asset market surged from 56.5% on November 5 to 78.2% as of December 7. During the same period, Bithumb’s share dropped from 41.2% to 19.3%. The shares of Coinone, Korbit, and Gopax remained largely unchanged at 0-1%.

Renewal Reviews of Five Major Exchanges Face Difficulties... Gopax in a Dilemma

Virtual asset service providers, including the five major won-based exchanges, are facing difficulties in the renewal review process. According to the FIU, as of the 18th, none of the 40 domestic providers have completed renewal registration. Recent media reports indicate that even Upbit, the top won-based exchange with over 70% market share, was found to have violations during the customer verification (KYC) compliance check. The FIU conducts on-site inspections upon receiving renewal applications. The results of the renewal review are expected to be announced next year.

Among the five major exchanges, Gopax is caught in a dilemma due to the 'GoFi debt.' Gopax has a real-name verified account contract with Jeonbuk Bank. Binance, an overseas exchange, attempted to acquire Gopax and promised 100% compensation for the withdrawal suspension damages (approximately 70 billion KRW at the time) suffered by GoFi investors, Gopax’s virtual asset deposit service, last year. However, the acquisition was stalled as financial authorities did not approve the change of major shareholder. Binance is now considering reducing its stake from the current 72.6% to the low teens. As part of this, it attempted to sell Gopax shares to Megazone, the parent company of Megazone Cloud, but negotiations effectively broke down after October due to insufficient consent from GoFi creditors during debt restructuring. Gopax is in a capital deficit state and is expected to struggle to sustain itself if no new buyer emerges.