South Korea plans to lift the ban on listed companies investing in cryptocurrencies, potentially leading to thousands of large investors driving up the "kimchi premium" again?

Author: Zen, PANews

The South Korean cryptocurrency market may be entering a new phase, with a shift from a landscape dominated by retail investors and lacking institutional participation.

On January 14, the Korea Composite Stock Price Index (KOSPI) broke through the 4,700-point mark for the first time in history, setting a new record high. Just as the South Korean stock market opened with this positive news, a significant boost also quietly emerged from the country's cryptocurrency market.

According to South Korean media reports, the Financial Services Commission (FSC) plans to lift the ban on corporate cryptocurrency investments, which has been in place since 2017, allowing listed companies and professional investors to participate in cryptocurrency trading. The FSC shared draft guidelines at a government-private sector working group meeting on January 6.

Breaking a nine-year ban, South Korean listed companies will be allowed to invest in cryptocurrencies.

These new regulations are essentially a continuation and further refinement of the "Promoting Virtual Asset Markets Plan" announced by the FSC in February last year. The original plan was to conduct pilot testing in the second half of last year, allowing some institutional investors with risk tolerance to open registered trading accounts for investment and financial purposes.

The target group approved to participate in the pilot program consists of approximately 3,500 listed companies and enterprises registered as professional investors under the Capital Markets Act, excluding financial institutions. The FSC stated that professional investors registered under the Capital Markets Act are already permitted to invest in the riskiest and most volatile derivatives, and these companies have a high demand for blockchain-related businesses and investments.

According to the Seoul Economic Daily, the FSC plans to allow eligible corporations to invest up to 5% of their net assets in cryptocurrencies annually. The new rules also define the range of investable cryptocurrencies. Purchases are limited to the top 20 cryptocurrencies by market capitalization, focusing on mainstream coins with good liquidity and large market capitalization, such as Bitcoin and Ethereum.

The specific rankings are based on data released every six months by DAXA, a consortium of South Korea's five major cryptocurrency exchanges. As for whether USD-pegged stablecoins (such as USDT) should be included, regulators are still discussing this and have not yet given a clear opinion.

Furthermore, regarding the transaction execution mechanism, it requires exchanges to split and execute large crypto transactions in batches, and sets limits on the size of individual orders. In other words, large buy and sell orders must be broken down into smaller orders and executed gradually by the exchange, and abnormal trading behavior must be monitored to reduce the impact on market prices and prevent manipulation and liquidity risks. This mechanism aims to ensure that the market remains stable even after institutional funds enter the market.

It should be noted that the provisions in the aforementioned draft regulations are not finalized. The FSC emphasized in its statement that the guidelines are still under discussion and development, and core details such as investment limits and investable assets have not yet been finalized. Sources indicate that the FSC expects to release the final guidelines as early as January or February 2026. If the guidelines are successfully implemented, cryptocurrency trading by corporations and institutions is expected to officially commence before the end of 2026.

A distorted market structure under restrictive policies: retail investor frenzy, institutional investor absence.

The relaxation of the ban on corporate cryptocurrency investments by South Korean regulators marks a significant shift since the implementation of strict regulatory policies in 2017.

In 2017, cryptocurrencies, represented by Bitcoin, experienced an explosive surge in South Korea, highlighting the "kimchi premium" phenomenon. Retail investor speculation was rampant, leading to a proliferation of irregularities such as ICOs, which alerted regulators. On the other hand, due to anti-money laundering and financial crime prevention concerns, South Korean authorities worried that large sums of money might use crypto assets to evade regulation. Consequently, financial authorities quickly implemented several emergency measures, including a ban on institutional investors participating in cryptocurrency trading.

The nine-year ban on corporate participation fundamentally altered the structure of South Korea's cryptocurrency market. The market is now almost entirely dominated by retail investors, while large institutional and corporate funds are excluded, resulting in relatively limited trading volume and activity. Simultaneously, some institutions and high-net-worth individuals seeking to allocate digital assets have opted to overseas markets, seeking more flexible investment channels.

The cryptocurrency market's dominance by retail investors and the absence of institutional participation stands in stark contrast to the significant institutional presence in mature markets. Therefore, while the strict ban in 2017 initially effectively curbed domestic speculation, it also contributed to the disconnect between the South Korean market and the global institutionalization trend.

In fact, South Korean regulators have begun to gradually loosen restrictions on cryptocurrencies for institutions in recent years. Over the past few years, as crypto assets have matured globally and financial institutions have significantly increased their participation, South Korean authorities have realized that continuing to adhere to outdated practices would inevitably lead to missed development opportunities. The South Korean government's "Economic Growth Strategy 2026" explicitly includes digital assets in its future financial landscape.

Starting last year, South Korea tentatively relaxed some regulations, such as allowing non-profit organizations and cryptocurrency exchanges to sell their holdings of crypto assets. With the new guidelines drafted by the FSC, regulators have finally reopened the green light for corporate crypto investments, making significant revisions to the previously stringent regulatory policies and establishing it as a crucial part of South Korea's digital finance strategy.

The entry of a major new player coincides with the DAT narrative reaching its lowest point.

The South Korean cryptocurrency market has always been known for its high level of speculation and enthusiastic retail investors. The upcoming lifting of restrictions on thousands of large corporations and professional institutions, allowing them to enter the market as significant new players, undoubtedly provides much food for thought for the industry.

South Korean media cited Naver, the South Korean internet giant currently acquiring the parent company of the South Korean cryptocurrency exchange Upbit, as an example. Naver's book value is 27 trillion won, which, theoretically, could purchase approximately 10,000 Bitcoins at the 5% cap. Such a massive influx of institutional funds will significantly increase the liquidity and depth of the domestic market. Industry insiders predict that this move will attract South Korean capital that has been observing overseas markets to return and enter the domestic cryptocurrency market through legal channels, supporting the development of the domestic trading ecosystem. The potential inflow after the lock-up period expires could reach tens of trillions of won (over ten billion US dollars).

Furthermore, previous bans prevented large companies from entering the crypto space, which to some extent dampened their enthusiasm for exploring blockchain technology and digital assets. With the reopening of the crypto space, it is expected that domestic crypto companies, blockchain startups, and related industries such as digital asset custody and venture capital will receive an indirect boost.

Cointelegraph analysis indicates that institutional entry will drive the expansion of local South Korean crypto companies and startups, and spur the emergence of enterprise-level digital asset treasuries (DATs). Simultaneously, allowing legal cryptocurrency holding is expected to promote cross-border blockchain project cooperation, attract overseas crypto institutions to operate in South Korea, and overall enhance South Korea's status as an Asian crypto financial center.

However, the effectiveness of the DAT strategy in South Korea faces multiple challenges. On one hand, policy restrictions hinder the South Korean version of "treasury companies" from fully expanding, with a mere 5% investment cap meaning a low proportion is allocated to cryptocurrencies. On the other hand, apart from pioneers like Strategy who have been operating for many years, most crypto treasury companies have suffered significant losses due to the "double decline in cryptocurrencies and stocks," causing the DAT narrative to cool to a freezing point, and global investors have lost interest.

More convenient investment channels have also reduced the necessity of the DAT strategy. As major global markets promote the launch of compliant investment products such as Bitcoin spot ETFs, institutions and investors can directly share in Bitcoin price increases through ETFs. Since ETFs already offer a simpler and safer investment tool, there's naturally less incentive to pay a premium for listed companies' cryptocurrency holdings. South Korea is currently also promoting spot ETFs based on assets such as Bitcoin, which may be officially launched as early as the end of this year.

Another factor that cannot be ignored is that, according to market observations, the South Korean cryptocurrency market experienced a sustained decline in activity in the second half of last year, with a large number of investors turning to the stock market. As of January 14th, the Korea Composite Stock Price Index (KOSPI) broke through the 4700-point mark for the first time in history, setting a new historical high. With sectors like semiconductors, AI, shipbuilding, and defense industries having more verifiable fundamentals, DAT clearly cannot compare.

Regardless, the positive signals from South Korea's policy shift are still commendable and worth anticipating. In the coming year, as relevant guidelines are finalized and laws are improved, the actual investment activities of South Korean companies deserve close attention. However, for the crypto industry, the key challenge is to strengthen its own capabilities, develop a new narrative, and regain broad participation from South Korean investors.