South Korea’s martial law declaration hits crypto reforms

Earlier this month, South Korea’s declaration of martial law affected critical reforms in its burgeoning crypto sector according to a report by decrypt. The unprecedented move has delayed key initiatives like legalizing securities token offerings (STOs) and introducing real-name corporate crypto accounts, both seen as essential to modernizing the country’s digital asset ecosystem.

The sidelining of crypto reform initiatives is a significant setback for an industry that has long sought regulatory clarity. STOs, a mechanism for companies to raise capital through digital tokens backed by real-world assets such as stocks or real estate, have been championed as a transformative tool for financial markets. Similarly, real-name corporate crypto accounts were expected to enhance transparency and reduce risks like fraud and money laundering, making them critical to fostering institutional trust.

These reforms had enjoyed bipartisan support and were poised for implementation before being delayed by the ongoing political turmoil.

President Yoon Suk Yeol’s decision to impose martial law on December 3—the first such declaration since 1980—sparked a nationwide crisis. Although the National Assembly swiftly nullified the order within six hours, the event shifted legislative focus entirely toward impeachment proceedings and the 2024 budget. Crypto-related bills, which were under active consideration, have now been put on hold indefinitely.

Financial regulators who had planned phased guidelines for real-name crypto accounts this month have redirected their efforts to stabilize traditional financial markets. This shift leaves South Korea’s crypto industry in a state of prolonged uncertainty.

South Korea’s National Assembly narrowly passed a tax reform bill on December 10, delaying the implementation of crypto taxation until 2027. The legislation, initially slated for a December 4 vote, was delayed due to the crisis, nearly causing the tax to take effect on January 1. The postponed tax would have imposed a 22% levy on annual crypto gains exceeding ₩2.5 million ($1,750).

The martial law declaration also rattled South Korea’s crypto markets. Bitcoin (BTC) prices on Upbit, the country’s largest exchange, nosedived by 33% within 30 minutes of the announcement, falling to ₩88,266,000 ($61,600) before recovering to ₩127,000,000 ($88,600). The volatility underscores the fragility of investor sentiment amid political instability.

South Korea’s crypto industry now faces an extended period of limbo as political priorities overshadow efforts to regulate and modernize the sector. 

Image credit: Generated via Ideogram.

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