Context and Impact
According to the Bank of Korea (BOK), the South Korean crypto market experienced a significant contraction in the first half of 2025. The total value of domestic investors’ crypto holdings fell by 27%, from a high of ₩121.8 trillion (approximately $89.2 billion) in January to ₩89.2 trillion (approximately $65.4 billion) in June. This decline of about $24 billion occurred despite a rising Bitcoin price globally, indicating an active withdrawal of capital from the market.
This downturn was accompanied by a dramatic collapse in trading activity. Daily trading volume on domestic exchanges plummeted by over 80%, from ₩17.1 trillion in December 2024 to just ₩3.2 trillion by June 2025. The BOK attributes this shift primarily to a booming local stock market, which attracted capital away from crypto assets as South Korean equities outperformed.
Simultaneously, regulatory scrutiny intensified. South Korea’s Financial Intelligence Unit (FIU) flagged a record 36,684 suspicious crypto transactions in just the first eight months of 2025, a figure that surpasses the combined totals for 2023 and 2024. A majority of these cases were linked to illegal foreign remittance schemes, known as “hwanchigi”, where stablecoins like Tether (USDT) are used to move funds across borders outside of official banking channels.
Implications
The convergence of a market slump and heightened regulatory action has several key implications for participants, from retail users to corporate treasuries.
Increased Compliance and Scrutiny: The surge in suspicious transaction reports means exchanges and other virtual asset service providers are operating under a microscope. This leads to higher compliance costs and more rigorous checks, which can shrink profit margins and potentially limit the services offered. For users, this may translate into more stringent identity verification processes.
Liquidity and Market Stability Risks: The massive outflow of capital and declining trading volumes directly impact market liquidity. Thinner order books can lead to wider bid-ask spreads and greater price volatility for local trading pairs, making execution more costly and difficult for larger trades.
Erosion of Trust: High-profile fraud cases and the persistent association of crypto with illicit activity wear down investor confidence. While the government is pushing pro-industry agendas, such as developing a framework for spot crypto ETFs and won-backed stablecoins, restoring trust among both retail and institutional players is a fundamental challenge.
Systemic Security Concerns: The use of crypto by state-linked hacking groups like Lazarus adds a layer of systemic risk. Money laundering associated with such hacks complicates the traceability and recovery of stolen assets, posing a persistent security threat that regulators are keen to address.
In summary, the South Korean crypto market is at a crossroads, caught between a significant capital exodus and a regulatory crackdown. The path to recovery hinges on the effectiveness of new regulations, the outcome of major legal cases, and the market’s ability to rebuild trust. The next steps will show whether the $24 billion loss leads to a more stable and mature market or prompts a more fundamental overhaul of the local crypto system.
