South Korean Crypto Sector Slowly Recovering from Terra Luna Collapse

South Korean Crypto Sector Slowly Recovering from Terra Luna Collapse

Time Stamp: April 19, 2023 10:30 AM
Source Node: 2594804

The collapse of stablecoin TerraUSD in 2022 knocked out more than $60 billion from the crypto market in a single week. However, the hardest-hit market was Korea, where the fallout is still being felt today.

The project had a significant impact on the homeland of founder Do Kwon, where more than 200,000 people were affected by the collapse. Some people even sold their homes to invest in Luna. To date, the Korean regulatory environment for cryptocurrencies is not particularly favorable.

South Korea is one of the world’s most significant marketplaces for cryptocurrencies. The nation’s currency, the Korean won, is the second most popular currency for trading Bitcoin behind the dollar.

According to a report released in September by the country’s Financial Intelligence Unit (FIU), there are an estimated seven million registered cryptocurrency users in Korea. The market size for the digital asset sector was close to $18 billion for the first quarter of 2022. It, however, declined to around $12 billion, according to a more recent study.

The Terra meltdown had an impact on local crypto trade, although there were undoubtedly other variables such as the war in Ukraine, decreasing liquidity and increasing interest rates.

The meltdown also had political repercussions. Presidential candidates last year adopted crypto-friendly stances in an effort to appeal to millennial voters. President Yoon Suk-Yeol, the victor, vowed to enable initial coin offerings and limit taxes on crypto earnings.

When he won, there was a media frenzy speculating about a government favorable to crypto, and the value of one Korean cryptocurrency project soared on these high hopes. However, Terra fell in May 2022, the same month Yoon became president.

Earlier this year, Korean legislators started working on the Digital Asset Basic Act (DABA), which refers to a total of 17 draft measures and primarily focuses on investor safety. None of these measures have been approved as yet.

At the moment, the main goals of cryptocurrency regulation are to stop terrorism and money laundering. In 2020, Korea added an amendment to its anti-money laundering law (AML) to cover virtual asset service providers (VASP). Korean cryptocurrency exchanges are required to report to the FIU, conduct KYC checks on new customers and report questionable transactions.

Do Kwon’s arrest has helped draw regulatory attention back to crypto assets, giving a long-delayed process some urgency. One crypto-related law might be voted on this month, while another might be taken into consideration the following month. The bills deal with safeguarding investors’ deposits, outlawing the use of personal/private information, manipulating market prices and engaging in unauthorized transactions.

Although it is difficult to predict where Korea will land on cryptocurrency regulation, its retail business is still demonstrating its strength. For instance, the recent boom of the XRP coin, which reached billions of dollars in trading volume on the three biggest local exchanges — Korbit, Bithumb and Upbit — was influenced by Korea.

Some former Terra users discovered other chains. And the outlook for the cryptocurrency market is still positive. To put it another way, significant portions of the Korean market have already moved past Terra’s collapse. And while it might take some time for crypto-friendly regulation to materialize, most Korean traders and builders are not stuck in the past.

The revival in the Korean crypto market is a reflection of what is happening across the board with companies such as Riot Blockchain Inc. (NASDAQ: RIOT) also possibly benefiting from the gains exhibited by the industry after the shocks it suffered in the recent past.

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