The South Korean government has ushered in an era of stricter regulation for digital assets with its latest Virtual Asset User Protection legislation. The law has been enacted as a response to a series of scandals that rocked the crypto market, including the implosion of coins created by Korean tech entrepreneur Do Kwon that aggravated a $2 trillion crypto-market downturn.
The landmark legislation, approved on Friday, is South Korea’s first comprehensive crypto regulation framework. It was formulated by integrating 19 pre-existing crypto-related bills. The law formally characterizes digital assets and sets out punitive measures for various offenses, including insider trading, market manipulation, and illicit trading practices.
Strengthening Oversight, Protecting Investors
The new legislation imbues the Financial Services Commission (FSC) with the authority to supervise crypto operators and asset custodians. In addition, the Bank of Korea has been granted powers to inspect such platforms.
The law imposes insurance requirements, mandates reserve funds, and calls for necessary record-keeping. It covers digital assets such as Bitcoin, while tokens classified as securities fall under the existing capital markets law.
The legislation comes at a time when investor faith in the Korean crypto market has been shaken. Particularly, Do Kwon, whose TerraUSD and Luna coins collapsed in 2022 wiping out at least $40 billion, was recently sentenced to four months in prison in Montenegro for trying to travel on a forged passport. Furthermore, Both South Korea and the United States have sought his extradition.
Welcome Change Or Potential Setback?
While some industry observers have praised the government’s proactive approach, others are more cautious. Lee Suh Ryoung, the chief secretary-general of the Korea Blockchain Enterprise Promotion Association, expressed concern that the law might inadvertently hinder the development of the industry by imposing traditional financial regulations on the burgeoning crypto sector.
Furthermore, Back Hyeryun, chair of the National Policy Committee at the South Korean parliament, stressed that the initial focus of the legislation would be investor protection. However, he also indicated the potential for broader oversight in the future.
According to CCdata, South Korea’s monthly spot crypto trading volume has seen a significant drop, falling from nearly $200 billion two years ago to roughly $38 billion in April. Nevertheless, the country continues to witness periods of intense interest in virtual assets.
This legislative development is not unique to South Korea though. Jurisdictions worldwide, including Hong Kong, Dubai, and the European Union, are beefing up their regulatory frameworks to keep pace with the rapidly evolving digital asset landscape.
As for the general market, over the past 24 hours, the crypto market has been in a bullish trend. Up by 2.2%, the global crypto market is currently valued at $1.23 trillion, at the time of writing.
Featured image from Unsplash, Chart from TradingView