South Korea Cracks Down on Leverage in Crypto Trading Amid Investor Protection Push

South Korean financial regulators have intensified their scrutiny of leveraged cryptocurrency trading products, signaling a potential shift in the country’s approach to managing risks in the digital asset market. The Financial Services Commission (FSC) and the Financial Services Authority (FSS) have convened discussions with key exchanges such as Upbit and Bithumb, which recently introduced margin trading services. These platforms now enable users to trade with leverage, a move that has raised concerns over the adequacy of investor protections and the potential for systemic risks [1].

The regulatory focus stems from a broader initiative to safeguard retail investors and stabilize the volatile crypto market. On July 30, 2025, officials held a meeting to evaluate the risks associated with these services and to outline necessary measures. The FSC emphasized the urgency of addressing leverage-related risks, particularly in the absence of clear legal frameworks. As a result, interim guidelines are being developed to bridge the regulatory gap while permanent legislation is drafted [1].

This move aligns with South Korea’s long-standing cautious stance on cryptocurrency, which includes prior bans and restrictions aimed at reducing speculative behavior. The introduction of leverage is seen as a potential catalyst for increased market volatility, especially with the involvement of short-selling mechanisms. Regulators are also concerned that the current environment may lead to unpredictable capital flows, as transparency and oversight are strengthened [1].

Industry analysts suggest that South Korea’s regulatory approach could influence global trends, particularly given the country’s active retail trading culture. The tightening of rules on leveraged products may lead to reduced trading volumes and speculative activity, mirroring past regulatory crackdowns. This development could signal a broader shift toward more conservative trading environments, not only within South Korea but potentially across other markets influenced by its regulatory actions [1].

The FSC and FSS have not yet finalized a long-term regulatory framework but have indicated that immediate steps will be taken to ensure investor safety. By prioritizing the protection of retail investors and mitigating systemic risks, the authorities aim to foster a more sustainable and transparent crypto market in the long run [1].

Source: [1] South Korean Authorities Target Crypto Leverage Regulations (https://coinmarketcap.com/community/articles/688a1bfb759c0a7d0966bade/)