South Korea's Crypto Market Faces 34% Trading Volume Drop Amid Regulatory Crackdown

South Korea began 2025 with significant political turmoil and regulatory scrutiny, which had a profound impact on its crypto market. The nation closed 2024 in disarray following then-President Yoon Suk Yeol’s failed attempt to impose martial law in December. This event set the stage for a series of regulatory actions and market adjustments in the first quarter of 2025.

In the aftermath of the political chaos, authorities focused on drawing clear regulatory boundaries. Financial watchdogs initiated probes into cryptocurrency exchanges and lifted the ban on corporate trading accounts. Despite the regulatory heat, crypto adoption reached record highs, although trading volume cooled down. This period saw a mix of regulatory crackdowns and market maturation, as the crypto sector was forced to grow up amidst the turmoil.

One of the key developments was the postponement of a planned 20% capital gains tax on crypto, which was delayed until 2027. This decision, reached through bipartisan consensus, was driven by fears of investor flight to offshore exchanges and challenges in tracking wallet-based profits. The delay came amidst mounting economic uncertainty and political turmoil following Yoon’s failed martial law stunt and subsequent impeachment.

Another significant event was the joint statement issued by the US, Japan, and South Korea warning against North Korean crypto hacks. Crypto firms were advised to guard against malware and fake IT freelancers, with the Lazarus Group identified as a prime suspect in several high-profile hacks in 2024. This warning highlighted the ongoing threat of cybercrime in the crypto space.

The Virtual Asset Committee, a crypto policy coordination body under the Financial Services Commission (FSC), held its second meeting in January. The FSC was expected to approve corporate access to trading accounts on local exchanges but held off on making an official decision, citing the need for further review. Instead, the FSC announced investor protections against price manipulation and stricter stablecoin oversight.

South Korean authorities also took enforcement actions against market manipulation. A trader was indicted in the first pump-and-dump prosecution under the Virtual Asset User Protection Act. Additionally, Upbit received a suspension notice for allegedly violating Know Your Customer (KYC) requirements in over 500,000 instances, prompting regulators to consider a ban on new user registrations.

In February, the FSC unveiled its plan to allow corporate entities to open crypto trading accounts in phases by late 2025. Charities and universities were given first dibs on corporate crypto access, with the rollout requiring businesses to use “real-name” accounts and comply with KYC and Anti-Money Laundering (AML) regulations. This move aimed to create a formal structure for institutional participation under tighter compliance standards.

The regulatory crackdown continued with the arrest of a serial fraudster, identified by the surname Park, for allegedly profiting 68 billion won in a crypto scam involving the token Artube (ATT). Park was previously indicted in a 14-billion-won token fraud case and was out on bail when he launched ATT. This arrest underscored the ongoing efforts to combat fraud in the crypto market.

Dunamu, the operator of Upbit, faced regulatory action from the Financial Intelligence Unit (FIU) for KYC compliance failures and dealings with unregistered foreign exchanges. The FIU issued a partial business suspension, restricting Upbit from processing new customers’ deposits and withdrawals for three months. Dunamu subsequently filed a lawsuit to challenge the sanctions imposed on the exchange.

In March, the FSC started reviewing legal pathways to allow Bitcoin (BTC) spot exchange-traded funds (ETFs), citing Japan’s evolving regulatory approach as a potential model. This marked a notable shift from South Korea’s previous opposition to crypto-based ETFs. The review was driven by lobbying efforts from major domestic brokerages and rising client demand.

The FIU also began a crackdown on unregistered exchanges, compiling a list of illegal foreign exchanges and moving to block access via app stores and ISPs. Additionally, the agency warned of criminal penalties for trading platforms operating without a license. Google Play removed 17 unlicensed crypto exchange apps in South Korea at the request of regulators, and the FIU was working with Apple to block unauthorized crypto platforms.

As March ended, more than 16 million investors held crypto accounts, surpassing the number of domestic stock traders. However, this surge in adoption came as trading activity cooled. Upbit, the country’s dominant exchange, saw volumes fall by 34%, dropping from $561.9 billion in Q4 2024 to $371 billion in Q1 2025. The crackdown continued to gain steam, with Apple following Google’s lead in removing offshore exchange apps from its store, and prosecutors filing another round of market manipulation charges.

South Korea’s crypto industry is now contending with tighter rules, rising institutional expectations, and a government no longer content to watch from the sidelines. This regulatory environment is set against the backdrop of an early presidential election in June, following Yoon’s impeachment. Crypto played a visible role in Yoon’s successful 2022 presidential election campaign and is expected to remain a key issue with voters. One candidate, former prosecutor Hong Joon-pyo of the People Power Party, pledged to overhaul crypto regulations in line with the pro-industry stance of the Trump administration. However, his understanding of the technology came into question as he admitted to not knowing what a central bank digital currency is.