Bithumb Economic Research Institute: "Next Year Will Be the Founding Year to Lay the Foundation for Virtual Asset Regulation"

"'Ripple Lawsuit' Key Event"
Trust Expected to Strengthen in Domestic Basic Law Legislation

[Asia Economy Reporter Lee Jung-yoon] Bithumb Economic Research Institute, under the domestic virtual asset exchange Bithumb, announced on the 27th through the report "2023 Virtual Asset Policy Outlook" that "2023 will be the inaugural year to lay the foundation for virtual asset regulation."

The report explained that the most notable event to watch next year in the virtual asset market's center, the United States, is the lawsuit between Ripple and the U.S. Securities and Exchange Commission (SEC). This lawsuit, commonly called the "Ripple lawsuit," involves the SEC claiming that Ripple is a security and that it did not comply with securities law regulations.

If the SEC wins, many altcoins could be classified as securities, which would subject them to SEC jurisdiction, including disclosure, unfair trading, and business regulations. Conversely, if Ripple wins, virtual assets are likely to fall under the jurisdiction of the U.S. Commodity Futures Trading Commission (CFTC), which has relatively lighter regulations. This would be a positive factor for Ripple and several altcoins by alleviating regulatory risks. Furthermore, the report stated that the outcome of the Ripple lawsuit will become an important precedent in determining whether virtual assets are securities.

The report assessed that it is realistically difficult for the virtual asset regulatory bills currently pending in the U.S. Congress to pass within this year. When the current session of the U.S. Senate and House ends on January 3 next year, all pending bills will be automatically discarded, and the new Congress will have to reshape the framework for virtual asset regulation. Following the results of the U.S. midterm elections held on the 8th of last month, where the Democrats control the Senate and the Republicans control the House, and considering the timing of legislative follow-up measures after past financial crises, it is analyzed that the virtual asset bills could pass Congress at the earliest by the end of next year.

The newly formed U.S. Congress early next year is expected to begin preparations for establishing virtual asset laws as soon as it convenes, due to increased calls for regulation following the FTX incident.

Regarding the domestic situation, the report forecasted that the outcomes of regulatory discussions led by financial authorities and the National Assembly this year will become concretely visible next year. Through the "Security Token Guidelines" to be announced early next year, the policy direction regarding the criteria for determining the security nature of virtual assets and their issuance and distribution systems will become clearer. Subsequently, security tokens are expected to be regulated under the "Capital Markets Act," while non-security tokens will be regulated under the newly enacted "Digital Asset Basic Act."

Currently, 14 bills related to the Digital Asset Basic Act are pending in the National Assembly, with the recently proposed bills by Baek Hye-ryun of the Democratic Party and Yoon Chang-hyun of the People Power Party being representative. The Bithumb Economic Research Institute explained that regardless of which bill passes, investor protection will be strengthened compared to before.

According to the bills, virtual asset exchanges must separate users' deposits from their own assets and entrust and manage them with a credible institution, and virtual assets must be segregated and stored by methods prescribed by law. Additionally, by defining unfair trading practices, it will become easier to punish fraudulent trading activities such as insider trading, price manipulation, wash trading, and bid rigging, making the market significantly more transparent. The report also anticipated that investor trust in domestic exchanges will increase, leading to a clearer distinction between domestic and foreign exchanges.

Oh Yu-ri, head of the policy research team at Bithumb Economic Research Institute, said, "This year was a year in which both the industry and investors felt the necessity of regulation due to the successive bankruptcies of global companies within the virtual asset industry," adding, "If major governments establish a reasonable regulatory framework based on an understanding of the blockchain ecosystem, 2023 will be the inaugural year for the related industry to regain investor trust and lay the foundation for long-term growth."

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