Slated for Mar. 9, the 2022 South Korean presidential election is less than two months away.
For the first time in history, presidential candidates are focusing on the country's legal and regulatory framework for cryptocurrency -- commonly referred to as "virtual assets" in Korea -- in their campaigns.
This focus on crypto can be seen as candidates' attempts to appeal to younger voters, particularly those in their 20s and 30s.
With over 8.5 million users (as of Oct. 2021), Upbit is by far Korea's largest crypto exchange. According to Upbit data analyzed by CoinDesk Korea, 31% of Upbit users are in their 20s, followed by users in their 30s, who comprise 29%. Users in their 40s comprised 24%.
In a survey of office workers conducted in April 2021 by recruiting platform Saramin, over 49% of respondents in their 30s said they have invested in cryptocurrencies. Over 37% of those in their 20s gave the same response.
This year's political campaigns reflect how prominent the crypto industry has become. Policy and towards crypto is now a major topic in the country's political discourse. Regulation and taxation of crypto have been repeatedly covered by Korean media throughout the past year.
In 2020, the National Assembly passed legislation that requires all domestic crypto exchanges to register under the Financial Services Commission (FSC). This legislation went into effect in March 2021, with a registration deadline of Sept. 24, 2021. However, the current regulatory framework simply takes existing anti-money laundering (AML) and know-your-customer (KYC) protocols and applies them to crypto exchanges, prompting lawmakers like Kim Byung-wook and Lee Yong-woo to call for crypto-specific legislation.
Similar to the US, South Korea's political scene is dominated by two parties -- one branded as liberal, the other conservative. In this election cycle, the liberal Democratic Party is represented by Lee Jae-myung, former governor of Gyeonggi Province. Yoon Suk-yeol, a former prosecutor general, represents the conservative People Power Party.
As of Jan. 19, Yoon is slightly ahead in the polls at 36.1% of the vote, compared to Lee's 34.9%.
Let's start with the policy pledges of the frontrunner, Yoon Suk-yeol.
Yoon's main pledge on crypto concerns a key conservative talking point: taxes. In December 2020, the National Assembly passed legislation that requires all crypto investors to pay a 20% tax on all income from crypto investments that exceeds 2.5 million won. Amounting to a little more than $2,000, this is a paltry figure. This tax law was originally set to go into effect on Jan. 1, 2022, but the National Assembly decided to delay the implementation until 2023.
For some context, the US has a 0% tax rate for long-term capital gains up to $41,675 for single-person households. The long-term capital gains tax rate doesn't jump up to 20% until an investor sees profit of $459,750 or more.
South Korea currently doesn't categorize crypto-related income as capital gains but simply as "other income," which explains the high tax rate. Criticism that Korea's crypto tax rate is too high and that the tax-free income level is too low, therefore, is to be expected.
On Jan. 19, Yoon held a press conference at the People Power headquarters in Seoul in which he pledged to raise the tax-free income level from 2.5 million won to 50 million won ($41,870), the same level for Korea's capital gains tax. This was Yoon's first time making a public pledge on crypto-related policy.
In addition to tax reform, Yoon pledged to push for crypto-specific legislation, with a "focus on protecting investors." He also promised to establish a separate government body for regulating the digital asset industry, including a financial institution tasked with officializing the link between banks and crypto exchanges.
Currently, South Korea does not have any laws that protect crypto investors from scams, exchange hacks, fraudulent ICOs, pyramid schemes and pump-and-dump campaigns.
Yoon called for "legal investigations" of such illegitimate activity and vowed to return all profits gained illegally by crypto firms to consumers.
Another key policy pledge from Yoon is the reintroduction of initial coin offerings (ICOs), the crypto industry's equivalent to initial public offerings (IPOs). South Korea banned ICOs in 2017, a year when an ICO boom fraught with scams, wild speculation, and ponzi schemes wreaked havoc on the domestic crypto ecosystem. Yoon plans to reintroduce ICOs by allowing vetted exchanges to issue their own tokens through a process known as initial exchange offerings (IEOs).
On the same day as Yoon's press conference, Democratic Party candidate Lee Jae-myung partook in a discussion on the virtual asset industry with the leaders of South Korea's major crypto exchanges, commonly known as the "Big 4": Upbit, Bithumb, Coinone, and Korbit. The discussion took place at Upbit's office in Seoul's Gangnam District.
Lee also pledged to create policies to normalize Korea's crypto industry and foster innovation.
As mentioned above, lawmakers like Kim Byung-wook and Lee Yong-woo have put forth bills for enacting crypto-specific legislation, but the National Assembly has yet to pass them. Lee pledged to work to make sure crypto-specific legislation is passed to "fill the legislative vacuum."
More specifically, Lee called for the need to establish a standard procedure for listing tokens and make it transparent to the public, as such procedures exist for the stock market. As of now, each crypto exchange makes its own standards for listing and delisting tokens.
Lee also vowed to monitor illicit activity and establish protective regulations that reduce the gaps in publicized data between different exchanges and agencies.
Regarding ICOs, Lee said he'd only consider reintroducing them after "consulting with industry experts" and "establishing sufficient safety nets that protect investors and prevent market chaos."
He also said he'd look into allowing security token offerings (STOs), a type of public offering for tokenized securities, which have the potential to foster innovation in creating different kinds of digital assets and provide a new way for venture capital (VC) firms to secure investments.
On this day, Lee said he'd look into raising the base level of taxable crypto income, but didn't provide a specific figure. He simply acknowledged that "the current base of 2.5 million won is too low."
On Jan. 21, however, Lee posted on his official Facebook page that he would work to increase the amount to 50 million won, the same level that Yoon promised.
Crypto: likely to be hot potato in upcoming debates
The Democratic Party and People Power Party are pushing for a televised debate in which only the two leading candidates of the presidential race would be present. This plan is receiving pushback from minority candidates like Ahn Cheol-soo of the People Party and Sim Sang-jung of the Justice Party. In any case, Yoon and Lee are likely to battle each other on the topic of virtual assets in the upcoming presidential debates, whichever form they take.
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