[MARKET EYE] S. Korea’s crypto market on path to gain more legitimacy

South Korea’s cryptocurrency market is on a solid path to becoming further legitimized with banks calling for authorization to enter the business and the incoming president pledging to ease regulations.

Asia’s fourth-largest economy’s crypto market is booming, with Koreans having invested a total 52.8 trillion won ($43.6 billion) in the digital asset last year in terms of the combined size of the accounts held by five major crypto exchanges, a watchdog Financial Supervisory Service data submitted to a lawmaker here showed Thursday. Of the total, investors in their 20s and 30s held 19.4 trillion won in the accounts, making up 36 percent of the pie. The five major crypto exchanges here are Upbit, Bithumb, Coinone, Korbit and Gopax.

Seeking to ride the wave, local banks are currently preparing to submit a request with incoming President Yoon Suk-yeol’s presidential transition committee to allow them to enter the crypto business, industry sources said Thursday.

Sources say that the Korea Federation of Banks, a representative body of commercial banks here, has sent domestic lenders for review a draft of requests to submit to the transition committee, with a key demand being the permission to deal with crypto. The draft reportedly expressed concerns of a “certain local crypto exchange” accounting for 90 percent of the market share, and called for the banks’ license to deal with crypto to prevent monopolization in the market. The KFB’s most notable members include the top five commercial banks — KB Kookmin, Shinhan, Hana, Woori and NongHyup — alongside the online-only Kakao Bank and Kbank.

Traditional banks in Korea are currently seeking new revenue sources in non-banking sectors, but face several legal restrictions in branching out. This is unlike big tech firms like Naver and Kakao, who have been successfully fostering their financial services.

Crypto exchanges in Korea are growing at an unprecedented pace, bolstered by retail investors flocking to the digital asset market.

Dunamu, operator of Upbit, posted a net income of 2.2 trillion won last year, with the figure growing 46-fold on-year. The news shocked onlookers, as it almost came neck-to-neck with Woori Financial Group, a major banking group here. Woori posted a net income of nearly 2.6 trillion won in the same period. Dunamu’s operating profit increased by 37 times on-year to nearly 3.3 trillion won in the cited period.

Meanwhile, Dunamu’s industry rival Bithumb Korea, operator of Bithumb, saw its net profit jump 427 percent to 672.8 billion won on-year in 2021.

South Korea’s crypto market is forecast to see a further boom under Yoon, as he pledged to adopt several crypto-friendly measures. His pledges include reducing taxation on crypto gains, reducing the chance of the incumbent Moon Jae-in administration’s plan to impose tougher crypto income taxes on investors whose gains exceed 2.5 million won from being realized.

By Jung Min-kyung (mkjung@heraldcorp.com)