[Practical Finance] Virtual Assets, Finding Investment Opportunities Amid Volatility

Bitcoin Surpasses $100,000, Now Trading at $94,000
"Attention Needed on Policy Implementation After Trump’s Inauguration"
Staking Gains Popularity as an Investment Method for Earning Interest on Virtual Asset Deposits

Last year, Bitcoin (BTC) solidified its position in the global financial market by joining the ranks of the 'world's top 7 assets.' In South Korea, the market size expanded significantly, with virtual asset trading volumes surpassing the average daily purchase amounts of the KOSPI and KOSDAQ. However, the virtual asset market has recently entered a consolidation phase. With variables such as policy changes following the inauguration of U.S. President Donald Trump, regulatory trends in South Korea, and global economic uncertainties intertwined, investors' approaches are diversifying.

Bitcoin Doubles in a Year... Impact of Trump’s Second Term Launch

The main reason for Bitcoin's sharp price increase last year was the anticipation of 'institutional adoption.' With the approval of Bitcoin spot exchange-traded funds (ETFs) in the U.S., major financial firms began including Bitcoin in their portfolios, and asset management companies started investing a portion of client funds in virtual assets, causing demand to surge. Bitcoin's price, which started at around $40,000 early last year, surpassed $100,000 by the end of the year, reaching an all-time high.

However, the overheated sentiment toward Bitcoin investment has recently cooled off. According to Investing.com, as of 9:04 AM on the 14th, Bitcoin was priced at approximately $94,500. Ahead of the scheduled launch of the Trump administration's second term on the 20th (local time), uncertainty has increased due to potential changes in virtual asset policies and interest rate impacts.

Seongwook Hong, a researcher at NH Investment & Securities, stated, "Before taking office, President-elect Trump appointed 'pro-digital asset' figures to key financial positions, clearly demonstrating a strong commitment to fulfilling digital asset pledges." He added, "The appointment of Tesla CEO Elon Musk and former Republican presidential primary candidate Vivek Ramaswamy as co-heads of the Department of Government Efficiency (DOGE) also supports this." Notably, the name DOGE is the same as the virtual asset Dogecoin, which CEO Musk once promoted. A change in the chairperson of the Securities and Exchange Commission (SEC) is also expected to bring significant shifts in regulatory policies.

However, if the Trump administration's protectionist policies fuel a 'strong dollar,' it could negatively impact the virtual asset market. Traditionally, Bitcoin has performed well during periods of dollar weakness. There is also speculation that the U.S. Federal Reserve (Fed) may slow down or halt interest rate cuts.

In South Korea, since the enforcement of the 'Virtual Asset User Protection Act' in July last year, internal controls at exchanges have been strengthened, and investor protection measures have been established. This year, alongside virtual asset taxation, whether corporations will be allowed to invest in virtual assets is expected to be a major issue. Currently, only individuals can open real-name accounts and invest through virtual asset exchanges in South Korea. Financial authorities are also considering a phased approach to allow corporations to open accounts this year. If corporate investment in virtual assets is permitted, it is expected to supply new liquidity to the market.

Virtual Asset Deposits → Rewards... Staking Emerges as a New Investment Method

Meanwhile, 'staking' has recently gained attention as a new method of virtual asset investment. Staking involves depositing held virtual assets on an exchange for a certain period, participating in the verification process of a specific blockchain, and receiving rewards as compensation for contributing to network operations. As of December 17 last year, the amount participating in staking on Upbit alone reached 3.85 trillion KRW.

Unlike Bitcoin and other assets rewarded through mining under the 'Proof of Work (PoW)' system, staking is based on the 'Proof of Stake (PoS)' system. In the PoS system, the reward rate varies depending on the amount of virtual assets held and the deposit period. Rewards are mainly paid in network transaction fees or newly issued coins.

Most investors use staking platforms provided by exchanges such as Upbit, Bithumb, and Coinone. Investors first need to select virtual assets that support staking, such as Ethereum (ETH), Cardano (ADA), Cosmos (ATOM), Tezos (XTZ), and Solana (SOL). Their reward rates generally range from 3% to 7% annually, which is higher than bank deposit interest rates. After selecting options and the amount of virtual assets to invest, the investment begins in earnest. Rewards are usually paid daily, weekly, or monthly. Investors can also reinvest all rewards to achieve compound interest effects.

However, staking carries risks due to liquidity restrictions for a certain period. Most staking involves locking virtual assets until network upgrades are completed. There is also a risk of loss due to network security issues or technical defects. Therefore, it is important to review the expected returns, reward payment frequency, and other factors by virtual asset type and platform in advance, and to monitor investment returns during staking.