South Korea's Parliamentary Elections Entangle Cryptocurrencies as a Battleground

South Korea's parliamentary election highlights the country's significant presence in the cryptocurrency market. Both major political parties seek to attract voters by offering incentives related to cryptocurrencies. The Democratic Party pledges to lift restrictions on exchange-traded funds holding Bitcoin tokens, while President Yoon Suk Yeol's People Power Party promises to delay a digital-asset tax. The election underscores South Korea's high participation in crypto investments, potentially influencing election results.

South Korea's Parliamentary Elections: Cryptocurrencies Emerge as a Major Battleground

Seoul, South Korea - South Korea's upcoming parliamentary election on April 10 has catapulted cryptocurrencies to the forefront of political discourse, underscoring the nation's status as a global crypto powerhouse. Both major political parties are embracing crypto-related incentives to woo voters, recognizing the substantial influence of the crypto community in this pivotal electoral showdown.

President Yoon Suk Yeol's People Power Party has pledged to delay the implementation of a digital asset tax, a move designed to appease a significant portion of the population who have actively invested in cryptocurrencies. The opposition Democratic Party, eager to challenge the incumbent, has promised to lift restrictions on exchange-traded funds (ETFs) that directly hold cryptocurrencies, including US Bitcoin products.

"We are committed to allowing ETFs, both domestic and overseas," declared Hwanseok Choi, a policy specialist for the Democratic Party and a contributor to the party's manifesto. "We believe that such investments provide access to a growing asset class for our citizens."

The inclusion of crypto-related promises in the manifestos of both major parties highlights the growing recognition of the crypto market's size and potential in South Korea. Official statistics indicate that over 10% of the population, exceeding 6 million individuals, participated in the crypto market through registered exchanges in the first half of 2022. This massive pool of potential voters has made cryptocurrencies an unavoidable issue in the upcoming election.

ETF Controversy

The controversy surrounding US Bitcoin ETFs has found its echo in South Korea. In January, the US Securities and Exchange Commission (SEC) approved the first ETFs that directly invest in Bitcoin, leading to a surge in total assets under management of these products to approximately $57 billion. However, South Korea's securities regulator swiftly declared that brokering such products locally could violate the law, effectively blocking a potential inflow of speculative capital.

The decision ignited confusion and caused volatility in the stock market. The People Power Party's manifesto does not delve into the controversy, instead focusing on delaying planned taxes on crypto gains beyond the scheduled timeframe of 2025.

South Korea's Crypto Ardour

South Koreans have enthusiastically embraced the recent crypto bull market, demonstrating a remarkable appetite for cryptocurrencies. Upbit, the nation's largest crypto exchange, consistently ranks among the top trading platforms globally in terms of volume. Korea Securities Depository data reveals that South Koreans invested over $200 million into US-listed Bitcoin holder MicroStrategy Inc. in March 2023. They have also flocked to US crypto-futures ETFs, which are permitted products.

The pervasive influence of cryptocurrencies extends even to election candidates, with approximately 7% of them reporting exposure to crypto assets, according to a Yonhap report analyzing asset disclosures.

Crypto Risks

Despite the widespread enthusiasm for cryptocurrencies, it is essential to acknowledge the inherent risks associated with the sector. South Korea has witnessed firsthand the devastating consequences of crypto scams, with the infamous collapse of Do Kwon's Luna and TerraUSD tokens wiping out over $40 billion in 2022.

However, the allure of the crypto market's $900 billion rally this year has overshadowed memories of the Luna debacle. A dedicated investor protection framework is scheduled to take effect in July, and both political parties have indicated their support for broader regulation of the industry.

Crypto Acceptance

The political overtures towards cryptocurrencies, coupled with the upcoming investor protection framework, signal a growing acceptance of digital assets in South Korea. This aligns with a broader trend across Asia, where governments are recognizing the potential of cryptocurrencies while seeking to mitigate risks.

In contrast to the hostility towards cryptocurrencies exhibited by many US officials, South Korean policymakers appear to be embracing a more pragmatic approach. Analyst Yumin Kim of Hanwha Investment & Securities Co. believes that spot-crypto ETFs will eventually be permitted, expanding the potential for the crypto market to become more "widely established as an investment asset" in South Korea.