South Korea is taking steps to expand the cryptocurrency market beyond individual investors by first allowing nonprofit organizations to liquidate their virtual assets, and widening the scope to crypto trading of general corporations later on this year.
The Financial Services Commission announced Thursday that it will allow the issuance of real-name accounts for nonprofit organizations for the purpose of cash conversion of digital coins in the first half of the year.
Eligible entities include law enforcement agencies like the National Tax Service that hold cryptocurrencies seized from unlawful activities, as well as designated donation organizations and university corporations that hold virtual assets received as donations. Cryptocurrency exchanges are also eligible for the permission.
In the latter half of the year, corporate investment in virtual assets will be partially allowed, with select institutional investors capable of bearing risk permitted to open real-name accounts for crypto trading. This includes about 3,500 companies, such as registered professional investors and listed companies under the Capital Markets Act.
Financial institutions will be excluded during the pilot trading phase to prevent virtual asset trading risks from spreading into the traditional financial system. As a result, derivative financial products, including exchange-traded funds, will not be introduced for the time being.
The FSC added that the market participation of general corporations, not classified as professional investors, will be reviewed based on the pilot program’s outcomes and after necessary regulatory updates.
A long-awaited development for the crypto industry, insiders have welcomed the plan, expressing optimism about its potential to drive market expansion and growth.
Experts highlighted that a key outcome that Thursday's announcement can bring about is market expansion, which is expected to contribute to long-term stabilization.
"Heavier liquidity reduces volatility. Currently, retail investors dominate the market, but the influx of large capital, particularly from corporate entities with far larger financial capacity than individual investors, will effectively broaden the market and gradually reduce volatility," an industry official, speaking on condition of anonymity, said.
According to an NH Investment & Securities estimate, Coinbase, the largest crypto exchange in the US, reported that its institutional trading volume was 3.6 times higher than retail trading volume as of the fourth quarter of 2024.
Market expansion is also expected to help alleviate the so-called "kimchi premium," referring to the price inflation of crypto assets in South Korea compared to international markets.
"In South Korea, the crypto market has struggled to grow despite surging demand from retail investors. A higher demand relative to supply drives prices up. If the market expands, the price discrepancy will naturally moderate," the official added. The price gap between Korea’s leading crypto exchange, Upbit, and US platforms for Bitcoin widened to nearly 10 percent in early February.
With the FSC signaling limits on cryptocurrency types during the pilot period to mitigate volatility risks, experts expect demand to initially focus on Bitcoin, the world’s largest virtual asset.
"Globally, an increasing number of listed companies are strategically investing in Bitcoin, and we expect domestic companies to follow suit by boosting their Bitcoin holdings for portfolio diversification and to enhance shareholder value," said Leem Min-ho, an analyst at Shinyoung Securities.
Leading the trend is US-based MicroStrategy, holding around $46.7 billion in Bitcoin as of Wednesday, having steadily acquired the asset since 2020. Other global companies are following suit, with Tesla accumulating 11,509 Bitcoins worth about $1.12 billion by the end of 2024, while Japan's Metaplanet plans to grow its 1,700 Bitcoin holdings to 10,000 by year-end.
To address risks from corporate investment in high-risk assets and market overheating, the FSC plans to strengthen oversights, including improving banks' transaction purpose verification, recommending cryptocurrency custody institutions and tightening investor disclosures.
jwc@heraldcorp.com
