Opinion: Three major changes that will occur in the virtual asset market after the Korean parliamentary election

Compiled by: Felix, PANews

According to the recent election results of South Korean parliamentarians, South Korea’s ruling party suffered a disastrous election defeat among all 300 seats, while the largest opposition Democratic Party and its satellite parties won a total of 175 seats seats. Therefore, some people predict that in the next four years (the term of the National Assembly), South Korea's main regulations will shift from conservative legislation to progressive legislation. In light of the election results, here’s a breakdown of potential market changes based on the Democratic Party’s campaign promises.

During the campaign, the Democratic Party of Korea made various promises to revitalize the digital asset market. Most importantly, the party focuses on stimulating the virtual asset market through measures such as the listing of Bitcoin ETFs and reducing the tax burden on individual investors. This means that individual investors can invest in virtual assets in a more favorable environment.

The Common Democratic Party’s commitments related to the cryptocurrency field:

韩国共同民主党第22次大选誓言，来源：韩国共同民主党

The Common Democratic Party’s main commitments focus on:

1. Promotion The listing of Bitcoin spot ETF
2. Reducing the tax burden on individual investors’ crypto investments
3. Institutionalizing the crypto market and strengthening investor protection

Policies of the Common Democratic Party The direction focuses on promoting the growth of the crypto market while strengthening investor protection to improve the health of the market. If the promise is fulfilled, it is expected to create a safer and more convenient environment for retail investors to invest in cryptocurrency within the institutional framework.

Bitcoin ETF listing and institutionalization of tokenized securities

The Common Democratic Party said it will allow the issuance, listing and trading of spot Bitcoin ETFs. This will provide opportunities for mainstream virtual assets, including Bitcoin, to be incorporated into the existing financial system, similar to U.S. ETFs. In addition, the party plans to legislate the issuance, sale and disclosure system of tokenized securities to promote the adoption of blockchain in traditional financial markets.

Although Bitcoin spot ETFs and security tokens have been discussed before, progress has been slow. It’s been a year since the guidelines for security tokens were released, but they have yet to pass Congress. Whether the Democrats can accelerate this pace will be interesting to watch.

Rationalization of virtual asset taxation and loss deduction

The Democratic Party announced that it will significantly increase the tax-free threshold for virtual asset investment from the current US$2,000 to US$40,000. It is expected to significantly reduce the tax burden of small-scale investors. At the same time, the Democratic Party plans to introduce loss offsets and a five-year loss carryforward deduction for losses incurred from investments in virtual assets. These tax incentives will encourage individual investors to participate more actively in the virtual asset market.

The ruling party urges postponement of cryptocurrency tax. Although the government and parliament have postponed the implementation date of cryptocurrency taxation to January 2025, judging from the election results, further extension is unlikely.

The Democratic Party of Korea also insists on implementing the financial investment income tax as scheduled next year. The financial investment income tax is a 20% tax on income from stocks exceeding KRW 50 million (approximately US$36,500) and income from overseas stocks exceeding KRW 2.5 million (approximately US$1,800). Since the tax burden in the crypto market is relatively low, there is the possibility of capital inflows into the crypto market.

Restrict large-scale exchanges and strengthen investor protection

The Democratic Party of Korea has also proposed plans to restrict large-scale exchanges, such as consolidating the order books of small exchanges and commoditizing trading services. Indonesia’s nationalized exchanges have previously implemented similar actions. This move aims to prevent excessive concentration of trading on the exchange and improve market fairness. These policies are expected to have a significant impact on the market, especially in South Korea, where Upbit has long held approximately 80% of the crypto exchange market.

来源：DAXA

In addition, the Democratic Party plans to introduce a "blue listing" system to protect investors. The system only allows high-quality virtual assets to be listed. This initiative is similar to the “white/green list system” adopted by the Japan Virtual Asset Exchange Association (JVCEA) to provide a framework for vetting crypto assets. Under the new system, asset screening will be conducted through independent third-party institutions such as the Korean Exchange, improving the transparency of crypto asset listings.

This policy is regarded as a necessary measure for the long-term healthy development of the Korean encryption market. Currently, there is a self-regulatory organization focused on Korean won exchanges - the Digital Asset Exchange Association (DAXA). Therefore, it remains to be seen how these institutions will relate to the Democratic Party.

Conclusion

How the "Virtual Asset User Protection Law" and other legislation will be implemented in July deserves attention. If the Minjoo Party’s commitment is successfully implemented, the Korean crypto market is expected to get rid of its current ambiguity and have clearer and more organized rules.

In addition, it is expected to promote the adoption of blockchain by traditional financial institutions, such as token securities and crypto ETFs, which have been slower to adopt compared to other countries. If various investment and business opportunities and investor-friendly policies are provided to create a sound and safe environment, it will contribute to the future revitalization of the Korean virtual asset market.

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