As published on nasdaq.com, Thursday January 9, 2020.
The South Korean Presidential Committee on the Fourth Industrial Revolution (PCFIR), a committee focused on coordinating regulatory policy around cutting-edge technology in the country, has made recommendations that the government work toward institutional acceptance of crypto assets, causing some to speculate that South Korea is preparing for a “crypto arms race” against the Chinese digital yuan.
Local media outlet Business Korea reported on January 6, 2020, that the PCFIR “suggested that the Korean government allow financial institutions to launch cryptocurrency-related products, such as Bitcoin derivatives, as a medium- and long-term strategy for the institutionalization of cryptocurrencies.”
As part of this strategy of working toward both nearer and longer term goals, the committee also recommended the development and implementation of a “Korean custody solution to avoid relying solely on foreign custodians in the process of handling crypto assets.”
This problem seems especially salient for South Korea, as it also formally recommended directly listing bitcoin for sale on Korea Exchange, the nation’s sole securities operator. Additionally, the report called for the legalization of private firms selling futures on bitcoin products. For this latter measure, the report explicitly drew comparisons to governments like the United States’, which have enacted similar measures, calling these regulations a model to be emulated.
Given the way that the PCFIR referenced the international crypto industry, specifically claiming that “it is no longer possible to stop crypto-asset trade” worldwide, commentators have drawn attention to China’s test phase of developing its own state-backed crypto asset: the digital yuan. The Chinese economy being a significant competitor to South Korea’s in a wide range of areas (and also considering China’s support for North Korea) adds validity to this notion that South Korea has a rivalry with the economic giant in mind in its own approach to formal crypto adoption.
The proposal of these new measures has not been the only crypto-friendly overture from the South Korean government recently. On December 30, 2019, the Ministry of Finance and Strategy confirmed that nothing in the country’s tax code currently supports the taxation of capital gains made through trading cryptocurrencies. Although there has been some chatter that the government will seek to tighten its tax codes in the future, concrete legislative attempts are yet to materialize.
Although it is unclear what amount of material resources the South Korean government will commit to the promotion of cryptocurrency and blockchain technologies, the suggestion that it will allow private firms more leeway to expand their services independently is a good start. As the possible global implications of China’s new program begin to crystallize, South Korea’s response will surely also become clearer.