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South Korea’s Central Bank Downplays Crypto Investment Risk for Domestic Banks

Last Updated March 4, 2021 5:11 PM
David Hundeyin
Last Updated March 4, 2021 5:11 PM

A new report by the Bank of Korea has poured cold water on the perception of cryptocurrencies as a significant share of the deposits held by South Korean banks.

The report, which was released on Friday July 6 placed the December 2017 total outstanding balance of crypto assets in South Korean banks at 2 trillion won (US$1.79 billion), according to local publication Yonhap .

The total share held by crypto assets within the 26 trillion won (US$23.39 billion) total deposit value of South Korean brokerage houses thus comes to 8 percent. The data thus indicates that in spite of vast amounts of market interest in cryptocurrency trading and investment, the actual level of crypto investment being carried out by major financial institutions is still relatively low.

An excerpt from the report reads:

“The amount of crypto-asset investment is not really big, compared with other equity markets, and local financial institutions’ exposure to possible risks of digital assets is insignificant. Against this backdrop, we expect crypto-assets to have a limited impact on the South Korean financial market.”

Government Intervention in Korean Crypto Market

Following a period of intense speculative price jumps in the crypto market in 2017, Korean regulators introduced a raft of KYC rules designed to reign in the market and prevent a bubble by making it accountable and transparent.  The measures included real-name account opening requirements and a restriction on crypto investment by minors. Regulators also reportedly considered levying a capital gains tax or sales tax on cryptocurrency trading. In spite of these measures, South Korea remains one of the biggest crypto trading hubs in the world, and any kind of blanket trade ban as in the case of China remains distinctly unlikely.

The timing of the new report by the Bank of Korea is likely intended to ease speculation in the crypto market and prevent the nightmare scenario of an overheating asset class that becomes a bubble. This report makes it clear to the market that in real terms, crypto is not quite that important just yet. In the absence of direct state intervention in the crypto market, it serves as a way to cool the market by signaling investors to wait a bit longer before plowing speculative funds into the crypto market. That buys an increased time window for Korean regulators to come up with measures to effectively control the rapidly growing and evolving trade of digital assets.

CCN.com earlier reported that South Korea is set to officially recognise crypto exchanges as regulated banks and financial institutions so as to enable trading platforms to perform at a large capacity with support from local authorities.

Bank of Korea image from Shutterstock.