Crypto industry squeezed by falling trading volume, tougher regulations – The Korea Times

The domestic cryptocurrency industry is grappling with mounting concerns over a market downturn as trading activity sharply weakens amid the ongoing stock market boom and as financial authorities move to tighten regulations, industry officials said Sunday.

According to data the Bank of Korea submitted to Rep. Cha Gyu-geun of the minor Rebuilding Korea Party, both domestic investors’ crypto holdings and transaction volumes have fallen by more than half over the past year.

The value of digital assets held by investors at the country’s five cryptocurrency exchanges — Upbit, Bithumb, Korbit, Coinone and Gopax — fell to 60.6 trillion won ($41.4 billion) at the end of February from 121.8 trillion won recorded at the end of January last year.

Average daily trading volume also fluctuated sharply during the period. After climbing to 17.1 trillion won in December last year, trading volume plunged to around 4.5 trillion won by the end of February this year.

“The sharp drop in domestic cryptocurrency holdings appears to have been driven by both capital flowing into the strong local stock market and declines in crypto prices,” Hong Sung-wook, an analyst at NH Investment & Securities, said.

At the same time, the industry is bracing for tighter regulations as financial authorities prepare to implement revised rules under the Act on Reporting and Use of Specified Financial Transaction Information in August to strengthen anti-money laundering oversight.

Under the law, financial institutions and virtual asset service providers are required to comply with obligations such as customer identity verification and suspicious transaction reporting to prevent illicit activities, including money laundering and terrorist financing.

Industry officials are particularly concerned about a proposed rule requiring cryptocurrency transactions exceeding 10 million won involving overseas exchanges or private wallets to be automatically classified as suspicious and reported to the Financial Intelligence Unit.

Digital Asset eXchange Alliance (DAXA), which represents major domestic crypto exchanges, argued that the strengthened regulations could undermine market activity by placing excessive compliance burdens on the industry.

“Applying a blanket suspicious transaction reporting requirement to all crypto transfers above 10 million won fails to reflect the unique nature of digital assets,” DAXA said in its report. “In the United States, transactions involving overseas crypto exchanges or private wallets are not automatically subject to additional reporting requirements. Instead, reporting obligations arise only when transactions above $2,000 are accompanied by clear signs of suspicious activity.”

The alliance has submitted a comment letter to the Ministry of Government Legislation on behalf of virtual asset service providers, urging authorities to reconsider the proposed amendments amid concerns they could further weaken market activity.

A representation of virtual cryptocurrency bitcoin / Korea Times photo by Shim Hyun-chul

Debate over fairness is also intensifying over the government’s plan to introduce cryptocurrency taxation next year. The change would make cryptocurrency gains subject to a 22 percent tax, despite the removal of tax obligations for general equity investors following the repeal of the financial investment income tax in late 2024.

Park Soo-young of the main opposition People Power Party noted that authorities are currently capable of tracking transactions only at the country’s five won-based cryptocurrency exchanges.

“The policy could accelerate capital outflows to overseas trading platforms such as Binance,” he said.

Oh Moon-sung, an adjunct professor at Kyung Hee University’s Graduate School of Business, argued that many of the reasons cited for abolishing the financial investment income tax, including concerns over weakening market activity and insufficient tax infrastructure, are equally relevant to the digital asset market.

“Applying taxes exclusively to cryptocurrency investments while excluding stock investments conflicts with the constitutional principle of equal taxation,” Oh said.

He added that cryptocurrency taxation should be postponed until critical conditions are in place, such as establishing clear tax guidelines for emerging digital asset transactions and building an integrated reporting system connecting domestic exchanges with the National Tax Service.