In Q1 2025, South Korea’s crypto market faced regulatory scrutiny following political turmoil. A postponed capital gains tax and warnings against North Korean hacking were prominent. Corporate trading access was proposed but pending approval, while major enforcement actions were initiated, including market manipulation prosecutions. The FIU blocked unregistered exchanges, indicating a commitment to tighten compliance as the number of crypto investors surged.
South Korea commenced 2025 amidst political chaos, regulatory scrutiny, and a restructuring crypto market, following President Yoon Suk Yeol’s failed martial law initiative in December 2024. Authorities responded with investigations into crypto exchanges and easing restrictions on corporate trading accounts as crypto adoption surged, even while trading volumes declined. Key developments in Q1 2025 significantly influenced South Korea’s crypto landscape, as detailed below.
On January 1, the anticipated 20% capital gains tax on cryptocurrencies was postponed until 2027 after lawmakers reached a bipartisan consensus. This marked the third deferment, originally scheduled for 2022, then 2023, and subsequently for 2025. The decision was driven by economic concerns, potential investor migration to offshore platforms, and the ramifications of political upheaval following Yoon’s controversial actions.
On January 14, a joint statement from the US, Japan, and South Korea alerted crypto companies to the threat of hacking from North Korean groups. The notorious Lazarus Group was highlighted for significant hacks in 2024, including high-profile incidents involving over $230 million from WazirX and $50 million from Upbit, South Korea’s largest crypto exchange.
The Financial Services Commission (FSC) conducted its second meeting on January 15 regarding corporate access to crypto trading accounts but delayed a decision due to the need for further analysis. Instead, the FSC focused on introducing measures for investor protection against market manipulation and implementing stricter oversight of stablecoins.
On January 16, South Korean authorities prosecuted a trader for market manipulation under the Virtual Asset User Protection Act. This marked the first significant enforcement action since the law’s implementation in July 2024, alongside a suspension notice for Upbit, related to repeated violations of Know Your Customer (KYC) obligations.
After service outages resulting from Yoon’s martial law announcement, Upbit and Bithumb pledged to compensate affected users on January 23. The unanticipated declaration caused significant market upheaval, overwhelming local trading infrastructures and leading to heightened regulatory scrutiny.
The FSC made strides towards incorporating corporate entities into the crypto market on February 13, announcing a phased approach for corporations to open trading accounts by late 2025. Compliance with KYC and Anti-Money Laundering (AML) regulations will be mandated, starting with charities and universities, enhancing the integrity of the cryptoeconomy.
Police arrested repeat offender “Jon Bur Kim” on February 21, connected to a significant crypto scam that reportedly gained him nearly $48 million. His manipulative tactics underscored the persistent threats within the crypto sphere, particularly for unsuspecting investors.
The Financial Intelligence Unit (FIU) took regulatory action against Dunamu, operator of Upbit, on February 25 for KYC compliance failures, resulting in sanctions that limited the platform’s ability to process new account transactions.
The attainment of structured oversight led to the establishment of the Virtual Asset Crime Joint Investigation Division on February 27. The task force, comprising prosecutors and regulatory experts, has already made substantial progress in investigating crypto crimes,
On March 5, lawmakers began reconsidering the ban on Bitcoin (BTC) spot exchange-traded funds (ETFs), influenced by developments in Japan and rising domestic demand. The FSC’s review indicates a possible shift in regulatory stance, potentially allowing broader institutional adoption in the future.
The crackdown intensified in March, with the FIU moving against unregistered exchanges on March 21, leading to the removal of 17 illegal exchange apps on March 26. Regulation aims to safeguard the market amid a growing base of investors, alongside an ongoing investigation into market manipulation cases.
While Upbit regained limited operational capacity through a court decision on March 27, the overall sentiment remained cautious as regulators enforced stricter compliance. By the end of Q1, over 16 million South Koreans held crypto accounts, indicating substantial adoption despite the decline in trading volume, signalling a tumultuous but promising future for the crypto economy.
As the political landscape prepares for an upcoming presidential election amid heightened scrutiny and evolving regulations, candidates, including former prosecutor Hong Joon-pyo, have unveiled plans to revise crypto policies. The results of these initiatives may significantly impact the future trajectory of the South Korean crypto market.
