[Reporter’s Notebook] Market Failure Created by “Maybe”

[Asia Economy Reporter Gong Byung-sun] "Maybe?"

This is the phrase most often heard when covering the cryptocurrency industry. And understandably so. No one has presented clear standards or regulations. The cryptocurrency industry seems to be hoping the market will self-correct according to the logic of a market economy introduced in the first chapter of basic economics. That is, a system where individuals holding the same information make decisions freely.

Game company Wemade unexpectedly sold a large amount of its self-issued cryptocurrency, ‘Wemix’. On the 10th alone, Wemix dropped by 18.56%, causing a significant shock to the market. However, investors still do not know the exact scale or timing of the sales. They have had to simply accept the company’s stance that the funds secured from selling Wemix will be used for corporate purposes.

What about financial statements, which contain the basics of capital market information? Currently, in Korea, cryptocurrencies are commonly accounted for as intangible assets. Although their volatility rivals that of stocks, they are not included as financial assets due to concerns that “maybe” there could suddenly be aspects that make them insufficient to be considered financial assets. However, the Accounting Association emphasizes that since value can be measured at a specific point in time, cryptocurrencies should be included as financial assets. Furthermore, unlike decentralized cryptocurrencies, cryptocurrencies issued independently by companies for fundraising can reasonably be considered financial assets.

Since they are viewed as intangible assets rather than financial assets, there are no clear standards. According to Wemade’s quarterly report as of the end of Q3 last year, Wemade holds 60.4 billion KRW worth of Wemix. As of September 30 last year, the total market capitalization of Wemix was 1.516 trillion KRW. The large discrepancy is because, unlike financial assets that are updated based on the quarter-end closing price, the valuation was based on the issuance price or initial price. Or “maybe” the company has already sold a large amount of Wemix, so the holding volume itself might be small.

It is absolutely impossible for everyone to share the same information as in the pure form of a market economy. However, it is the role of the state and society to minimize information asymmetry as much as possible. Even now, investors trust the cryptocurrencies and issuing companies they invested in while repeating “maybe.” By the way, if you go a little further in basic economics, you encounter ‘market failure’ caused by information asymmetry. The way to repay investors’ trust is to prevent market failure through information disclosure.

This content was produced with the assistance of AI translation services.