Kimchi Premium & P2P Crypto Trading in South Korea Spikes, FSC Taxing NFTs & Banning NFT Games
Amidst the regulatory headwind, SK Square, the investment arm of a telecom giant, became the 2nd-largest shareholder of crypto exchange Korbit, while Upbit’s parent company buys a stake in the bank Woori Financial.
The Financial Services Commission (FSC) of South Korea wants the National Assembly to bring criminal liability to price manipulation, insider trading, and other unfair behavior in crypto markets, according to a report submitted to the South Korean Parliament earlier last week.
The National Assembly has ordered the FSC to develop a comprehensive draft bill on crypto in a month.
The FSC report will be used to draft crypto legislation, and its recommendations call for punishments relative to the gains obtained unfairly, with a minimum of one year in prison and fines 3-5 times the illicit gains.
The agency, however, also wants crypto service providers to form an association so that they can regulate themselves.
NFTs Under Scrutiny
FSC has also called for taxes on some types of NFTs. Earlier this month, some FSC officials have said that NFTs would not be subject to the crypto tax, but now FSC Vice Chairman Do Gyu-sang said in no uncertain terms that “The Ministry of Strategy and Finance is preparing tax provisions for NFTs in accordance with the Special Reporting Act.”
Additionally, the regulators are banning NFT-applied games in the country on concerns that they could fuel gambling addiction among teens and the younger generation.
“It's not the blockchain technology that we are banning,” an unnamed official at South Korea's Game Rating And Administration Committee told Reuters. “What we are saying ‘no' to is the application of NFT that can be connected to real assets.”
Despite the local regulatory hurdle, local game developers are looking to cash in on the NFT boom, with NCSoft Corp saying earlier this month that it is ready to release a game that includes blockchain and NFT elements next year.
P2P Trading Spikes
South Korea is set to implement a 20% tax on crypto gains over KRW 2.5 million ($2,100) starting next year, but both the ruling and opposition parties are calling for an extension to the deadline.
Reportedly, both parties have effectively agreed on the amendment to the Income Tax Act, which suspends the taxation of virtual assets for one year, to begin on January 1, 2023.
Last week, this sent the kimchi premium to over 8.5% — the highest since May this year — which has come down to 5.3% on Monday. The most popular crypto assets on the largest South Korean exchange Upbit are SAND trading at $7.80 and Bitcoin $60,430, while on Binance, BTC is around $57,600, as of writing.
While crypto regulations are getting more strict, interest in crypto isn’t affected though trading has shifted to P2P exchange platforms.
According to recent data from LocalBitcoins, more than 353 million Korean Won (just under $300k) were traded in the first week of this month.
Integrating with traditional finance
Amidst the regulatory headwind, SK Square, a new investment company under South Korean giant SK Telecom, announced on Monday that it had become the second-largest shareholder of Korbit by investing about 90 billion won ($75.5 million) to acquire a 35 percent stake.
The exchange recorded about 3,584 trillion won in crypto transactions between January and September this year, about 450 trillion won greater than the transaction value of the Kospi, the major stock market index of South Korea, during the same period.
Meanwhile, Upbit’s parent company Dunamu has become a shareholder of Woori Bank, one of the largest banks in South Korea. Last week, Dunamu purchased 1% of Woori Financial for $81.7 million from Korea Deposit Insurance Corporation.
Thanks to the crypto market gains since last year, Dunamu has accumulated more than a trillion Korean won ($900 million) worth of cash equivalents by the end of last year.