South Korea’s Bold New Limits on Crypto Exchange Ownership Unveiled

In a groundbreaking policy development, South Korea’s government and its ruling party have reached an agreement on a draft regulation aimed at imposing a cap on individual ownership in domestic cryptocurrency exchanges. The new regulation, which seeks to prevent any single entity from holding more than 20 percent in a local crypto exchange, could significantly affect major players such as Upbit and Bithumb that currently dominate the country’s digital assets market.

What Drives the Ownership Cap?

The regulation, crafted through collaboration between the Democratic Party’s Digital Asset Task Force and the Financial Services Commission, aims to dilute concentrated ownership in the digital asset sector. If approved, exchange operators will need to realign their ownership structures within a three-year window to conform to this limit. For smaller and medium-sized exchanges, authorities are considering granting a three-year extension, easing the transition.

This extended timeframe presents hurdles for major exchanges, which control about 90 percent of market volume. Upbit’s chairman, Song Chi-hyung, currently holds more than 25 percent, while Bithumb’s parent company has over 70 percent control. Exchanges like Coinone, Korbit, and GOPAX also show significant concentrated ownership patterns, necessitating considerable restructuring under the new framework.

What Are the Concerns in the Legislative Process?

The legislative proposal is currently pending in the National Assembly. While supported by some regulators, industry experts have voiced concerns. Critics argue that such stringent ownership caps could dampen innovation and erect barriers against market entry for new players. Industry representatives have labeled the proposed restriction as unprecedented globally, fearing it could stifle competition.

A representative from the sector cautioned that few countries have adopted similar restraints, suggesting it might suppress market competition.

These discussions occur as South Korea amps up its regulatory scrutiny. Early in 2024, the National Assembly enacted tougher licensing criteria for digital asset service providers, including increased due diligence on shareholders and mandates for management transparency.

Regulators are weighing additional proposals that might heighten information disclosure standards for cryptocurrency investors, underscoring South Korea’s robust regulatory stance towards the swiftly developing digital asset sphere.

• Restriction sought for maximum 20% ownership cap on exchanges.
• Tighter deadlines posed for major players like Upbit and Bithumb.
• Potential 34% ownership exemptions for new companies considered.

As the country advances towards regulatory refinement, these potential measures highlight an ongoing commitment to assert control and maintain transparency across its expansive and evolving digital currency sector.