Seoul's Big Gamble: Can Crypto Assets Reshape South Korea's Economic Future?

Why Seoul is betting its economic future on digital assets

Original author: Thejaswini MA, Token Dispatch

Original translation: Peter, Techub News

On that bizarre night in December 2024, when former President Yun Suk-yeol announced martial law, sent troops to the National Assembly, and even attempted to use force against North Korea, he probably could not have imagined that this farce of political suicide would give rise to one of the most radical cryptocurrency policy agendas in the world.

And that is indeed the case.

The two-hour coup attempt ended in impeachment, creating a power vacuum. Filling the void was former provincial governor Lee Jae-myung, known as a “disruptor.” With a unified government and clear mandate, Lee’s administration introduced the Digital Asset Basic Act within days of taking office and set about repealing eight years of corporate cryptocurrency restrictions.

Before we go into more details, there is one thing we need to explain about South Korea: South Korea is a technologically advanced economy, where the public is widely aware of cryptocurrencies, and it is also facing structural economic problems that are difficult to solve with traditional monetary policies. Cryptocurrencies not only provide a solution to alleviate the current economic pressure, but also lay the foundation for building long-term competitive advantages.

The number of people holding cryptocurrency accounts in South Korea has now reached 16 million, exceeding the number of stock investors in the country, which is 14.1 million. This is the first time in South Korea’s history that retail participation in digital assets has exceeded that of traditional stocks.

Nearly one-third of South Korea's population is involved in cryptocurrency trading, and more than half of adults under the age of 60 do so. Twenty percent of government officials disclosed cryptocurrency holdings totaling about $9.8 million. According to a report by the Hana Financial Research Institute, 27% of South Koreans aged 20 to 50 hold cryptocurrencies, and digital assets account for 14% of their financial asset portfolio.

It’s the result of years of growing cryptocurrency adoption, driven by economic pressures, a growing familiarity with the technology and a political system that ultimately chose to accommodate rather than resist the change.

 Data source comes from @yna

Economic foundation

South Korea's acceptance of cryptocurrencies stems from real economic pressures that traditional policy tools are unable to address. The country's GDP growth forecast for 2025 is only 0.8%, a figure that usually only appears during major financial crises. In March 2025, the youth unemployment rate rose to 7.5%, the highest since the same period in 2021.

South Korea’s national debt-to-GDP ratio is approaching 47%-48%, having risen after the pandemic but now stabilizing. South Korea’s household debt-to-GDP ratio will be 90%-94% by the end of 2024, among the highest in the world and the highest among major developed economies and Asian countries. This is in stark contrast to other major economies, where government debt often exceeds household debt. In the United States, household debt accounts for 69.2%, while government debt accounts for 128%; in Japan, government debt accounts for 248%, while household debt accounts for only 65.1%. South Korea’s inverted debt structure brings unique economic pressures: policy decisions are driven more by personal financial pressures than sovereign fiscal concerns.

When interest rates rise and economic growth stagnates, this debt burden will drag down consumer spending, which cannot be solved by monetary policy alone.

For millions of young South Koreans, cryptocurrencies represent, as researcher Eli Ilha Yune puts it, a kind of “financial desperation.” This is not out of ideological support for blockchain technology, but a realistic response to an economy with few other avenues for wealth creation. Traditional investments such as stocks offer meager returns, real estate is unaffordable, and the long-term sustainability of the national pension system is in question.

This background explains why cryptocurrency adoption in South Korea is different from other markets. While Western investors often view cryptocurrencies as a means of portfolio diversification or speculation on technology, Korean investors view them as essential financial infrastructure. The government’s cryptocurrency policy is a response to the widespread popularity of cryptocurrencies.

Lee Jae-myung’s government has developed a cryptocurrency agenda aimed at preventing South Korea’s wealth from flowing overseas through digital assets denominated in U.S. dollars. Currently, when Korean investors buy stablecoins, they mainly choose USDT or USDC, which is actually equivalent to transferring capital to the financial infrastructure controlled by the United States.

In the first quarter of 2025, South Korean cryptocurrency exchanges transferred approximately 56.8 trillion won (about 40.6 billion U.S. dollars) in digital assets overseas, of which stablecoins accounted for 26.87 trillion won (about 19.1 billion U.S. dollars), almost 47.3% of all outflows of digital assets.

Interestingly, this capital outflow occurred at a time when the won was actually strengthening against the dollar. In 2025, the won had appreciated by about 6.5% against the dollar, and as of July, the exchange rate remained in the 1393-1396 won per dollar range. This suggests that Korean investors' preference for dollar-denominated stablecoins is not due to the weakening of the local currency, but rather to the lack of won-denominated alternatives and the global dominance of the dollar-dominated cryptocurrency infrastructure.

The Digital Asset Basic Law establishes a regulatory framework for Korean companies to issue stablecoins pegged to the Korean won. Its capital requirement is 500 million won (about $370,000) to enter the stablecoin market. This low threshold is intended to encourage domestic competition while maintaining basic standards.

Can this won-stablecoin strategy really stop capital outflows? If Koreans want to hold USD assets, they can still convert won into USDC. Therefore, the real purpose of this strategy is to reduce the demand for foreign stablecoins by providing similar advantages (programmability, decentralized financial access, 24/7 trading) without the need for currency conversion. More importantly, it keeps financial infrastructure in the country, with fees, custody services, etc. flowing to Korean institutions rather than Circle or Tether. This is a behavioral guidance rather than capital control, which makes won-denominated options more convenient while placing financial operations under Korean supervision.

The eight major banks in South Korea have begun to cooperate in the development of a stablecoin pegged to the Korean won, with the goal of launching it in late 2025 or early 2026. The alliance includes KB Kookmin Bank, Shinhan Bank, Woori Bank, Nonghyup Bank, Korea Development Bank, Suhyup Bank, K Bank and IM Bank. Their goal is not only to compete with USDT and USDC, but also to build a financial infrastructure that can keep Korean economic activities within the local system.

The stablecoin strategy reflects widespread concerns about the dollar’s dominance in digital finance. Currently, 99% of the world’s stablecoins are pegged to the dollar, giving U.S. financial institutions and regulators outsized influence over digital asset infrastructure.

The Bank of Korea has expressed concerns about privately issued stablecoins, warning that such currencies could "severely weaken the effectiveness of monetary policy and pose systemic risks." The disagreement led to the suspension of South Korea's central bank digital currency (CBDC) project in June 2025 as officials questioned whether it was necessary to launch a state-operated CBDC when private alternatives might perform similar functions more efficiently.

Institutional Transformation

In 2017, South Korea imposed restrictions that prohibited businesses, institutions and financial companies from opening accounts on cryptocurrency exchanges due to concerns about speculation and money laundering. Only individuals can trade cryptocurrencies using verified real-name accounts. Institutional and corporate accounts are prohibited, and banks face strict compliance obligations. The current government has initiated a phased process to lift these restrictions.

In the initial phase (mid-2025), nonprofits and some public institutions are now allowed to liquidate cryptocurrencies obtained through donations or seizures, provided they meet strict compliance requirements, such as using verified real-name exchange accounts in Korean won and setting up internal review committees.

The government will extend eligibility for cryptocurrency exchange accounts to about 3,500 listed companies and professional institutional investors through a pilot program by the end of 2025. These accounts must be verified by real name and comply with strict anti-money laundering (AML) and KYC protocols. Financial authorities have announced that listed companies will eventually be allowed to directly participate in cryptocurrency trading, which will drive large-scale adoption at the corporate level.

Major domestic exchanges have launched or upgraded “institutional-grade” products, custody solutions and support services to meet the likely growing demand from large corporations and professional investors.

Currently, traditional financial institutions such as banks, asset managers and brokers are still excluded from direct cryptocurrency trading. This setup ensures that the first wave of institutional cryptocurrency activity in South Korea will be led by non-financial companies, which may give them a competitive advantage when the regulatory door opens further.

Political recognition

Lee Jae-myung's cryptocurrency agenda has gained broad political support, not just within his Democratic Party. During recent campaigns, both major parties pledged to legalize cryptocurrency ETFs, a rare moment of bipartisan consensus in South Korean politics. The Financial Services Commission, which had previously opposed discussing cryptocurrency ETFs, has now submitted a roadmap to approve spot Bitcoin ETFs and spot Ethereum ETFs by the end of 2025.

The political shift reflects how cryptocurrency has become an important voter issue. South Korea’s more than 16 million cryptocurrency holders account for about a third of the country’s total population, and digital asset policy has moved from a niche technology policy to a mainstream political issue.

The government is also taking broader steps to support cryptocurrency businesses. The Ministry of Small, Medium and Startups announced plans to lift restrictions that would no longer prevent cryptocurrency companies from obtaining venture business status, allowing them to enjoy significant tax benefits, including a 50% reduction in corporate income tax for five years and a 75% reduction in real estate purchase tax.

South Korean investors have reacted enthusiastically to these policy developments. Bank stocks surged after the stablecoin trademark applications were filed. Kakao Bank’s stock price rose 19.3% the day after it filed a cryptocurrency-related trademark application, and KB Financial Group’s stock price rose 13.38% after a similar application.

Even more striking is that in June 2025, South Korean retail investors poured nearly $450 million into Circle Group shares, making it the most sought-after overseas stock that month. Since its listing in June, Circle's stock price has risen by more than 500% as South Korean investors see it as a bellwether for global stablecoin applications.

This investment model reflects investors’ deep understanding of how South Korea’s stablecoin policy can drive global stablecoin infrastructure demand. South Korean investors are planning for South Korea’s potential influence on the global digital asset market.

Lee Jae-myung's cryptocurrency strategy faces huge external pressure. U.S. President Donald Trump has threatened to impose tariffs of up to 50%, which could severely hit South Korea's export-dependent economy. With exports accounting for 40% of GDP, trade disruptions could trigger a recession, limiting the funds available for cryptocurrency investment no matter how well regulated it is.

The time crunch has created a race between policy implementation and a worsening economy. South Korean authorities are rushing to build cryptocurrency infrastructure in case potential trade conflicts make the economic environment too difficult and hinder new investment initiatives.

Domestically, the central bank’s opposition to private stablecoins could spark ongoing regulatory tensions. South Korean bank officials prefer to keep stablecoin issuance under banking regulations rather than allow tech companies to enter the monetary infrastructure space.

Tax policies have also yet to be determined. A planned 20% capital gains tax on cryptocurrency gains exceeding 2.5 million won in annual profits has been postponed several times but is still scheduled to be implemented. How this tax interacts with new corporate cryptocurrency entry rules will affect institutional adoption patterns.

The global impact of South Korea’s cryptocurrency policy is being closely watched by the international community and could serve as a model for other countries facing similar economic pressures and technology adoption models. The combination of regulatory clarity, institutional access, and local stablecoin infrastructure constitutes a comprehensive solution for digital asset integration.

If successful, the South Korean model could influence policymaking in other Asian economies and provide a template for countries that want to maintain monetary sovereignty while embracing digital asset innovation.