[Opinion] Characteristics and Challenges of the Korean Virtual Asset Market

The first government survey results on the virtual asset market, which most dramatically demonstrates the flow of the digital transformation by assigning economic value to digital assets and trading them, were announced on March 2. According to the survey conducted on 29 virtual asset service providers registered with the Financial Intelligence Unit, the market size of the domestic virtual asset market is a total of 55.2 trillion KRW, with an average daily trading volume of 11.3 trillion KRW. The average commission rate for buying and selling virtual assets was 0.17%, significantly higher compared to the stock trading commission rate of 0.0027%. As of the end of December 2021, the total customer-held KRW deposits, which are pending trading funds, amounted to 7.64 trillion KRW.

The total number of virtual assets traded domestically is 1,257, covering 623 types, among which 403 types are singly listed virtual assets, accounting for 65%. Based on market capitalization, the global proportion of Bitcoin and Ethereum is 59%, whereas the KRW market is 27%, and the coin market is 9%, indicating that the domestic market has a higher proportion of non-mainstream, singly listed virtual assets compared to the global market, rather than Bitcoin and Ethereum. In the second half of 2021, the price decline rate of domestic virtual assets compared to their average peak was about 65%, showing volatility 4.4 times higher than that of the securities market. The total number of domestic users utilizing virtual asset service providers is 15.25 million, with 5.58 million actively participating in trading. By age group, those in their 30s (31%), 40s (27%), and 20s (23%) account for 81%, representing the 20-40 age group. Trading participants engaged in an average of 4 trades per day, with an average transaction amount of approximately 750,000 KRW per trade.

This survey first shows that virtual assets have become a pillar of our economy. One in three citizens holds a virtual asset investment account, and the KRW deposits in exchanges account for one-eighth of the 65 trillion KRW investor deposits in the stock market. Secondly, Korea’s virtual asset market has a very high proportion of so-called altcoins rather than Bitcoin and Ethereum, resulting in very high price volatility of virtual assets. Consequently, it is characterized as a market centered on individual investors seeking high-risk, high-return opportunities. According to Pieters’ 2018 study, the ratio of the virtual asset market to the stock market in Korea is 82.5, much higher than Japan’s 11.5 and the United States’ 5.1. In other words, Korea’s virtual asset market is excessively active.

Ultimately, the domestic virtual asset market is evaluated as having characteristics of being centered on individual investors, focused on altcoins different from global trends, and having excessive trading volume relative to the size of the domestic financial market. Regarding this domestic virtual asset market, President-elect Yoon Seok-yeol announced a pledge to allow virtual asset issuance (ICO: Initial Coin Offering) and to legislate the virtual asset industry by enacting the Digital Asset Basic Act, thereby making disclosure systems transparent and monitoring unfair trading to protect investors. Meanwhile, U.S. President Joe Biden also issued an executive order to initiate cryptocurrency research to prepare a federal government-level digital asset strategy.

The recently rapidly growing virtual asset market has not demonstrated the unique advantages of blockchain technology, such as decentralization and transparency. Now, commensurate with its growth, measures should be considered to establish listing, disclosure, and delisting standards for investor protection and to secure its status as an industry capable of global expansion.

Seong-yeop Lee, Professor at Korea University Graduate School of Technology Management / Director of the Technology Law Policy Center

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