Will South Korea's Nine-Year Ban Lifting Reignite a $10 Billion "Kimchi Premium 2.0"?

Original Author: Zen, PANews

The South Korean crypto market may usher in a new landscape, with a turning point for the situation dominated by retail investors and lacking institutional participation.

On January 14th, the Korea Composite Stock Price Index (KOSPI) broke through the 4700-point mark for the first time in history during intraday trading, setting another record high. Just as the South Korean stock market welcomed good news, significant positive developments also quietly emerged in the country's crypto market.

According to South Korean media reports, the Financial Services Commission (FSC) plans to lift the ban on corporate cryptocurrency investments that has been in place since 2017, intending to allow listed companies and professional investors to participate in cryptocurrency trading. At a government-private sector working group meeting on January 6th, the FSC shared a related draft guideline.

Breaking the Nine-Year Restriction: South Korean Listed Companies to be Allowed to Invest in Cryptocurrencies

This new regulation is essentially a continuation and further refinement of the "Virtual Asset Market Advancement Plan" announced by the FSC in February last year. The original plan was to conduct a pilot test in the second half of last year, allowing some institutional investors with risk-bearing capacity to open real-name trading accounts for investment and financial purposes.

The target group approved to participate in the pilot project is 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 business and investments.

According to disclosures by the Seoul Economic Daily, the FSC plans to allow eligible corporate entities to invest up to 5% of their net assets annually in cryptocurrencies. The new regulation also defines the scope of investable assets. It is limited to purchasing large-cap cryptocurrencies ranked within the top 20 by market capitalization, focusing on mainstream coins with good liquidity and large scale, such as Bitcoin and ETH.

The specific rankings will be determined based on data published every six months by DAXA, an alliance formed by South Korea's five major crypto exchanges. Regarding whether USD-pegged stablecoins (such as USDT) should be included, regulators are still discussing and have not yet given a clear opinion.

Furthermore, regarding the trade execution mechanism, it requires exchanges to split and execute large crypto trades in batches when matching them, and to set single-order size limits. In other words, large buy or sell orders need to be broken down by the exchange into smaller orders for gradual execution, and abnormal trading activities will be monitored to reduce the impact on market prices and prevent manipulation and liquidity risks. This mechanism aims to ensure the market can still operate smoothly after institutional funds enter.

It should be noted that the various provisions in the aforementioned draft regulation are not final. The FSC emphasized in a statement that the guidelines are still under discussion and development, and core details such as investment limits and eligible assets have not been finalized. Some sources indicated that the FSC expects to publish the final guidelines as early as January-February 2026. If the guidelines are successfully implemented, corporate crypto trading could officially commence by the end of 2026.

Distorted Market Structure Under Restrictive Policies: Retail Frenzy, Institutional Absence

The South Korean regulator's relaxation of the corporate crypto investment ban this time marks a significant shift since the implementation of strict regulatory policies in 2017.

In 2017, cryptocurrencies represented by Bitcoin experienced explosive growth in South Korea, the "Kimchi Premium" phenomenon became prominent, retail speculation enthusiasm soared, and chaos such as ICOs proliferated, raising regulatory vigilance. On the other hand, due to anti-money laundering and financial crime prevention concerns, South Korean authorities worried that large funds might evade supervision through crypto assets. Consequently, financial authorities quickly enacted several emergency measures, including prohibiting corporate entities from participating in cryptocurrency trading.

The nine-year corporate ban fundamentally altered the participation structure of the South Korean crypto market. The main trading participants in the country's market were almost entirely filled by retail investors, while large institutions and corporate funds were kept out, leading to relatively limited trading volume and activity in the South Korean market. Meanwhile, some institutions and high-net-worth funds seeking digital asset allocation chose to go overseas to find more lenient investment channels.

The market structure dominated by retail investors and lacking institutions also forms a stark contrast with the significant institutional share in mature markets. Therefore, while the strict 2017 ban initially effectively curbed the local speculative frenzy, it also, to some extent, caused the South Korean market to fall out of step with the global institutionalization trend.

In fact, South Korean regulators have begun gradually loosening crypto restrictions on institutions in recent years. Over the past few years, as crypto assets matured globally and financial institution participation increased significantly, South Korean authorities also began to realize that sticking to old ways would inevitably mean missing development opportunities. In the "2026 Economic Growth Strategy" announced by the South Korean government, digital assets were explicitly included in the future financial landscape.

Starting last year, South Korea tentatively relaxed some regulations, such as allowing non-profit organizations and crypto exchanges to sell their held crypto assets. Until this new guideline drafted by the FSC, regulators have finally given the green light again for corporate crypto investment, making a major correction to the strict control policies and becoming an important part of South Korea's digital finance strategy.

Major New Players Entering the Market, Coinciding with DAT Narrative Hitting Rock Bottom

The South Korean crypto market has long been known for its high speculation and fervent retail investors. With thousands of large corporations and professional institutions about to be unbanned and allowed to enter as major new players, it undoubtedly brings considerable room for imagination to the industry.

Some South Korean media gave an example: Naver, the South Korean internet giant acquiring the parent company of the South Korean crypto exchange Upbit, has book equity of 27 trillion won. With a 5% upper limit, it could theoretically purchase approximately 10,000 Bitcoins. Such massive institutional funds entering the market would significantly increase local market liquidity and depth. The industry expects this move to attract South Korean capital观望 overseas back, entering the domestic crypto market through legal channels, supporting the development of the local trading ecosystem. The potential inflow scale after the ban is lifted could reach tens of trillions of won (over a hundred billion USD).

Furthermore, under the previous ban, large companies could not venture into the crypto field, which somewhat suppressed corporate enthusiasm for exploring blockchain technology and digital assets. After opening up, it is expected that local crypto companies, blockchain startups, and related industries such as digital asset custody and venture capital will receive an indirect boost.

Cointelegraph analysis pointed out that institutional entry will drive the expansion of local South Korean crypto companies and startup projects and spur the emergence of enterprise-level Digital Asset Treasuries (DAT). Simultaneously, allowing legal holdings is also 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 hub.

However, whether the DAT strategy proves effective in South Korea faces multiple tests. On one hand, policy restrictions make it difficult for the South Korean version of "treasury companies" to fully施展, with only a 5% investment cap meaning the proportion allocated to cryptocurrencies is relatively low. On the other hand, aside from pioneers like Strategy that have been布局 for years, the vast majority of crypto treasury companies in the market have suffered significant losses due to the "dual decline of coins and stocks," which has cooled the DAT narrative to rock bottom, with global investors largely losing interest.

More convenient investment channels have also diminished the necessity of the DAT strategy. As major global markets advance the launch of compliant investment products like Bitcoin spot ETFs, institutions and investors can directly share in Bitcoin's price appreciation through ETFs. Since there are already simpler and safer investment tools like ETFs, naturally, there is less enthusiasm for paying a premium for listed companies holding cryptocurrencies. South Korea is also currently advancing spot ETFs based on assets like Bitcoin, which could officially launch as early as the end of this year.

Another factor that cannot be ignored is that, according to market observations, the heat in the South Korean crypto market continued to decline in the second half of last year, with a large number of investors转向 the stock market. As of January 14th, the KOSPI broke through the 4700-point mark for the first time in history during intraday trading, setting another record high. With sectors like semiconductors, AI, shipbuilding, and defense with more verifiable fundamentals, DAT clearly cannot be compared.

Nevertheless, the positive signal released by South Korea's policy shift is still worthy of recognition and anticipation. In the coming year, as related guideline details are implemented and laws are完善, the actual investment actions of South Korean companies deserve close attention. However, for the crypto industry itself, it must strengthen itself from within. Presenting new narratives and regaining widespread participation from South Korean investors is the key challenge to overcome at present.