Local crypto market faces turning point in 2023

Authorities plan to formulate new regulatory rules for volatile cryptocurrency industry

(Reuters-Yonhap)

The year 2022 was a gloomy one for the local digital assets market, with the values of major cryptocurrencies falling sharply amid a string of catastrophes ranging from the collapse of terra and its sister currency luna to the delisting of wemix.

With related authorities forging multiple regulations to systematize the volatile market and ensure consumer rights, the digital assets market in Korea is expected to face changes in 2023.

One of the significant changes that will reshape the industry is the institutionalization of security token offerings, or STOs, slated for the year. The country's top financial regulatory body, the Financial Services Commission, is set to issue guidelines later this month to bring security tokens within the scope of capital markets.

Though the regulator has not yet shared an official definition of the term, “security token” refers to a digital token supported by blockchain technology, representing a stake in financial instruments such as stocks, bonds or options. Unlike other cryptocurrencies, a security token certifies ownership of a financial instrument.

Local stock brokerage firms are paying keen attention on the government's move on the STO system, which was among the state agenda items proposed by the Yoon Suk-yeol administration. For the securities firms, STO business can be a new revenue source as tokens will be distributed via the same method as existing securities but require lower costs.

If launched, the tokens could be exchanged on platforms other than the existing coin exchanges such as Upbit or Bithumb, Korea’s largest cryptocurrency exchange.

“We plan to list securities tokens and open the digital securities market to exchange them this year,” Korea Exchange Chairman Son Byung-doo said at an event on Jan. 1.

The industry anticipates the STO introduction to set standards for the digital assets market.

“Through the guidelines on STO, the standards on the publication and distribution of digital assets will be clarified,” a think tank under Bithumb said in a report.

“The market will be officially organized with security tokens coming under regulations in the Capital Markets Act and non-security tokens under the digital asset management framework,” the report said.

Meanwhile, the National Assembly's work to set the legal framework for digital assets to regulate the market is underway, but at a slow pace.

The gist of the bill is the incorporation of digital assets and related activities into the institutional system to create an environment where investors can invest safely to ensure orderly trading and help the local market respond globally.

After being placed on hold for months, a committee of the National Assembly will start screening the bills at a meeting scheduled for Jan. 16.

It was hoped that the framework could be passed last year, but it could not pass the National Assembly threshold as rival parties were unable to come to an agreement.

“Ensuring transparency is the most important agenda item for the legislation,” said Korea Institute of Finance researcher Lee Dae-ki, referring to the fallout from the delisting of the wemix cryptocurrency last year. “The government should make crypto regulations meet the standards of the securities market.”

Lee expects the crypto market to be polarized in 2023.

“More reliable coins such as bitcoin and ethereum will flourish following regulations that ensure market stability. But it is likely that tokens with higher risk will be kicked out of the market, as regulations will focus on minimizing damages for consumers,” Lee said. Higher interest rates will also encourage polarization, as consumers will be less likely to invest in high-risk assets, he added.

Taxation on digital assets has also been postponed. Though the levy on digital assets was to be imposed starting Jan. 1, the National Assembly postponed the move for another two years until 2025. The Finance Ministry said the legal protection of investors in digital assets should precede the taxation.

By Im Eun-byel(silverstar@heraldcorp.com)