Talk in political circles favors the legal acceptance of cryptocurrencies such as Bitcoin, despite the government’s skepticism over digital assets. 

Rep. Kim Byung-wook of the ruling Democratic Party is working on a proposed legal framework that would embrace the trading of digital assets and regulate cryptocurrency markets. It has gained momentum largely due to the ample liquidity driven by the government’s monetary easing stance amid the COVID-19 pandemic, according to industry sources Tuesday. 

The conservative main opposition People Power Party is also planning to launch a task force charged with developing legislative proposals on the legalization of cryptocurrencies, as well as the protection of crypto traders from illegal activities by local exchanges, they added. 

The recent initiatives by lawmakers coincide with rising calls for a system to encourage crypto investments and strengthen regulatory oversight amid the nationwide crypto craze.

During the first quarter, the number of real-name accounts on Korea’s four major cryptocurrency exchanges -- Upbit, Bithumb, CoinOne and Korbit -- exceeded 2.5 million in the first quarter of the year, with daily cryptocurrency turnover recently surpassing 20 trillion won ($17.9 billion), according to Rep. Kwon Eun-hee of the People’s Party, quoting data from the Financial Services Commission. 

The current laws, however, run counter to the crypto boom. The recent amendments to the Act on Reporting and Using Specified Financial Transaction Information, which took effect in March, lack provisions to institutionalize virtual assets. The purpose of the change was mainly to force coin operators to adopt anti-money laundering measures as well as information security management systems.

In general, the institutionalization of a new market, such as a market for cryptocurrencies, happens when the government sets legal requirements for related service providers to receive authorization from financial regulators.

But the financial authorities have instead sounded the alarm on the risks of trading in cryptocurrencies, with Financial Services Commission Chairman Eun Sung-soo recently having defined a cryptocurrency as “a virtual asset with no intrinsic value.”

On Tuesday, Finance Minister and acting Prime Minister Hong Nam-ki reiterated the government’s skeptical view of cryptocurrencies.

“Under the current law on fostering the capital market, it is quite difficult to regard virtual cryptocurrencies as financial assets like stocks or bonds. Accordingly, traders of digital tokens are not subject to the government’s supervision nor protection.”

Digital asset transactions are expected to become more transparent as the latest revision to the Act on Reporting and Using Specified Financial Transaction Information obligates crypto service providers to report their business status to the financial authorities to begin operations, Hong added.

Meanwhile, to deter illegal cryptocurrency transactions the policymaking FSC is promoting a change to the Act on Reporting and Using Specified Financial Transaction Information that would prevent a virtual asset operator from entering the market if its major shareholder or real owner has a criminal history. 

Under the current law, criminal checks on virtual asset service providers are limited to their executives and take place before the financial authorities approve business registration. 

A prosecution probe was launched Friday against Lee Jung-hoon, former chairman of local exchange Bithumb Korea and the company’s real owner, holding a stake of nearly 50 percent, for allegedly evading property taxes abroad, officials said. 

By Choi Jae-hee (cjh@heraldcorp.com)