SEOUL – Campaigning in South Korea’s parliamentary election has underlined the nation’s status as one of the world’s largest crypto markets, with both major political parties touting related inducements to win votes.
President Yoon Suk-yeol’s People Power Party has vowed to delay a digital asset tax, while the opposition Democratic Party pledged to lift curbs on exchange-traded funds (ETFs) – including US Bitcoin products – that directly hold tokens.
“We’re going to allow the ETFs, whether domestic or overseas,” Democratic Party policy specialist Choi Hwan-seok said, citing its manifesto.
Dr Choi, a member of the party’s think-tank, participated in drawing up the manifesto.
Mr Yoon is seeking to wrest control of the legislature in the April 10 poll from a progressive camp led by the Democratic Party.
Official figures show that more than six million South Koreans – over 10 per cent of the population – participated in the crypto market via registered exchanges in the first half of 2023. That represents a sizeable pool of potential voters in a pivotal election.
ETF controversy
The US in January gave the green light for ETFs investing directly in Bitcoin, and the products have amassed total assets of about US$57 billion (S$76.9 billion) so far.
South Korea’s securities regulator quickly said brokering the products locally may violate the law, effectively choking a potential outflow of speculative cash.
The move stoked some confusion and roiled a slew of stocks. The People Power Party’s manifesto does not dwell on the controversy, instead promising to delay planned taxes on crypto gains beyond the scheduled timeframe of 2025.
South Koreans have been active in the latest digital asset bull market and are famed for their ardour for smaller cryptocurrencies, not just market leader Bitcoin. Upbit, the biggest domestic crypto exchange, regularly ranks among the top platforms globally for trading volume.
Korea Securities Depository data shows that South Koreans in March poured more than US$200 million into the shares of US-listed Bitcoin holder MicroStrategy. They also flocked to US crypto futures ETFs, which are permitted products.
Even election candidates have exposure – some 7 per cent own crypto, according to a Yonhap report that analysed asset disclosures.
Crypto risks
The flip side of such speculative interest is that crypto is a highly risky sector – the nation infamously spawned Do Kwon and his doomed Luna and TerraUSD tokens, which blew up more than US$40 billion when they imploded in 2022.
But memories of the wipeout, which impacted hundreds of thousands of people, are being overshadowed by 2024’s US$900 billion jump in the crypto market.
A dedicated investor protection framework comes into effect in July, and both parties have indicated they would also pursue wider regulation for the industry.
Along with the sops floated by politicians, this points to the possibility of greater acceptance of digital assets in South Korea, echoing a broader Asian trend. In contrast, many US officials are hostile to crypto.
Expectations are growing that spot crypto ETFs will eventually be allowed, adding to the potential for the crypto market to be more “widely established as an investment asset” in South Korea, Hanwha Investment and Securities analyst Kim Yumin wrote in a recent note. BLOOMBERG
