Cryptocurrency is enjoying its second nationwide boom in South Korea since 2018. This March, users of the two largest cryptocurrency apps tripled to well over 2 million in just three months. Contrary to the last 2018 cryptocurrency fever in South Korea, which was led by Koreans in their 20s and 30s, a new survey this January reported that nearly half of users at the two largest cryptocurrency exchanges were in their 40s and 50s, representing an older generation. The wide age range of these crypto users indicates that society’s most technologically advanced – and enigmatic – medium of exchange is fast becoming mainstream.
Part of this mainstream trend comes from the national interest in the stock market. Leading bestsellers at South Korea’s largest bookstore now target retail investors who have recently picked up interest in the stock market. Out of the top 10 bestsellers, five of them are related to finance and the stock market, accelerating financial literacy across generations. The top bestseller for two months straight, which gives financial advice on the stock market, commands a broad readership whose age range includes those in their 30s (30 percent of readers), 40s (28.5 percent), 50s (20.9 percent), and 20s (11.6 percent).
The rising interest in finance signals a nationwide change of attitude toward the stock market, which was treated with wariness before. If baby boomers and Generation X are dominating the cryptocurrency scene, Korean millennials – many of whom humorously call themselves “investor kids” (jureenyi) or beginning investors – are bustling around the traditional stock market, which is traditionally perceived as the exclusive moneymaking (or losing) domain of white-collar fathers.
Increasingly after COVID-19, both of these age groups seem to be alarmed by fears of monetary inflation followed by the government’s stimulus packages, skyrocketing real estate prices, and stagnating wages in the extremely competitive job market. Through cryptocurrency and stock market transactions, South Koreans – young and old – are actively seeking to secure steady streams of passive income.
While the crypto fever simply means a smarter way of accumulating capital for many investors, the government and banks are still cautious about the mushrooming interest in all kinds of cryptocurrencies and stocks. The growth in mortgages and stock investment loans are alarming signals of mounting financial risk, for example. According to the Bank of Korea’s most recent analysis, domestic household loans, mostly mortgages, increased by 125.6 trillion won ($112 billion) last year, the largest annual increase since 2016. Loans to retail investors for share purchases are also seeing a steady increase since last year and reached 21.724 trillion won ($19.421 billion) on February 25, according to the Korea Financial Investment Association.
On February 23, Bank of Korea Governor Lee Ju-Yeol said cryptocurrency has no “intrinsic value” and that “it is difficult to understand why the price of bitcoin is so expensive.” Echoing the government’s skepticism, three of the five largest Korean banks do not currently handle transactions with crypto exchanges, where the risk of money laundering, data leaks, and hacking still looms large. The high volatility of cryptocurrency, such a Bitcoin, is hardly compatible with the conservative nature of central financial regulators and banks, which have traditionally favored price stability.
Concerns still linger, but a recent administrative effort has been underway to regulate the overheated stock and crypto markets. The Ministry of Economy and Finance announced that crypto investors whose gains exceed 2.5 million won ($2,260) will have to pay a 20 percent tax from 2022. Retail investors’ profits from the stock exchange, worth over 50 million won, will also be taxed starting in 2023. The newly revised Act on Reporting and Using Specified Financial Transaction Information sought to clarify the specific legal requirements for exchanging virtual assets, which can prevent illegal activities using cryptocurrency.
The improved financial literacy among the public, as observed by the crypto fever, may spur South Koreans to adopt digital currency in everyday life. However, it is highly possible that the current decentralized cryptocurrencies, such as Bitcoin, may not be part of this future change, largely due to their high volatility. Instead, the Bank of Korea has announced a virtual pilot testing on the central bank digital currency (CBDC), which will be subject to central bank regulation as a fiat currency. The government’s recent move to legalize a digital currency aligns with those of the United States, European Union, India, Sweden, Japan, and particularly China, which has been most active in adopting its national digital currency.
The tech-savvy population of South Korea, along with their boosted financial literacy, is poised to quickly adapt to the new digital era. When doling out stimulus checks to the public, the South Korean government could automatically wire the cash to 2.8 million households’ bank accounts without requiring individual applications. The widespread use of smartphones and the world’s fastest internet speed also made this process highly efficient and simple during the pandemic period.
With the coming of the digital age, particularly after COVID-19, an increasing number of financial transactions are set to take place on virtual platforms, rather than physical bank branches. The recent popularity of the crypto and stock markets has pushed young and old Koreans to use their smartphones and laptops to access the stock market online. Looking to the future, the South Korean government should take advantage of this crypto fever as an opportunity to fast-track its global digital currency.
Hayoung Seo(2021.03.03) South Korea’s Cryptocurrency Craze
retrieved from https://thediplomat.com/2021/03/south-koreas-cryptocurrency-craze/
