South Korea Squeezes Crypto Market as Regulators Tighten Oversight and Tax Virtual Assets

South Korea’s crypto market is being squeezed as investors cut exposure and regulators move to tighten oversight, with Bank of Korea data submitted to Rep. Cha Gyu-geun showing digital asset holdings at the country’s five exchanges falling to 60.6 trillion won at the end of February from 121.8 trillion won at the end of January last year.

“South Korean investors have reduced their exposure to digital currencies by half over the past year, as investors turn to a strong stock market and dollar-denominated stablecoin holdings, which surged nearly tenfold amid a strong dollar”

CoinGeek

The same data show average daily trading volume dropping from 17.1 trillion won in December last year to around 4.5 trillion won by the end of February this year, while the industry braces for revised rules under the Act on Reporting and Use of Specified Financial Transaction Information in August to strengthen anti-money laundering oversight.

CoinGeek

The Korea Times also reports that a proposed rule would automatically classify cryptocurrency transactions exceeding 10 million won involving overseas exchanges or private wallets as suspicious and require reporting to the Financial Intelligence Unit.

In parallel, WuBlockchain says South Korea’s Ministry of Economy and Finance will implement scheduled virtual asset taxation starting next January, with gains classified as “other income” and a total tax rate of 22% consisting of a 20% income tax and a 2% local income tax on profits exceeding 2.5 million Korean won.

Industry groups are pushing back on the proposed suspicious-transaction reporting approach, arguing it could undermine market activity by adding compliance burdens and by failing to reflect how digital assets work.

The Korea Times quotes Digital Asset eXchange Alliance (DAXA) saying, "Applying a blanket suspicious transaction reporting requirement to all crypto transfers above 10 million won fails to reflect the unique nature of digital assets," and adds that DAXA submitted a comment letter to the Ministry of Government Legislation.

Cointelegraph

The Korea Times also reports that DAXA pointed to the United States, where it says reporting obligations arise only when transactions above $2,000 are accompanied by clear signs of suspicious activity rather than being automatically triggered.

Separately, Cointelegraph frames the same South Korean policy debate around the scale of compliance, saying the industry body warned the proposal could increase suspicious transaction reports from about 63,000 cases last year to over 5.4 million.

As the crypto market weakens, the policy focus is also shifting toward taxation and stablecoins, with WuBlockchain saying South Korea’s government will begin taxing virtual assets as scheduled starting next January.

“Crypto industry squeezed by falling trading volume, tougher regulations Bitcoin prices are displayed at the Bithumb Lounge in Seoul’s Gangnam District, March 4”

The Korea Times

WuBlockchain reports that under the current Income Tax Act, gains from the transfer or lending of virtual assets will be classified as “other income” starting January 1 next year, and that the National Tax Service is coordinating with five major virtual asset operators including Upbit, Bithumb, Coinone, Korbit and Gopax to formulate specific taxation plans.

CoinGeek adds that South Korean investors reduced their exposure to digital currencies by half over the past year, with domestic digital asset holdings plunging from KRW 121.8 trillion ($93.7 billion) in early 2025 to KRW 60.6 trillion ($46.6 billion) at the end of February.

CoinGeek also says stablecoin holdings surged nearly tenfold, rising almost ten-fold from KRW 88.5 billion (~$68 million) in mid-2024 to a peak of KRW 872.3 billion (~$671 million) towards the end of last year, and remaining around KRW 607.1 billion (~$467 million) in February.