South Korea tightens crypto rules ahead of institutional market entry

South Korea is implementing stricter regulations for its cryptocurrency market, aiming to balance innovation with risk mitigation. New rules, effective June 2023, govern both nonprofit and exchange cryptocurrency activities.

Nonprofit organizations can now sell cryptocurrency donations, but only after meeting stringent criteria. At least five years of audited financial records are required, along with the establishment of an internal Donation Review Committee to oversee the process. All donations must be channeled through verified Korean won accounts, with banks, exchanges, and nonprofits sharing verification responsibilities. Only cryptocurrencies listed on at least three major domestic exchanges are eligible for sale, and liquidation is mandated immediately upon receipt. These measures aim to prevent money laundering and ensure responsible handling of donations.

Cryptocurrency exchanges face similar restrictions. They can liquidate user fees paid in cryptocurrency, but only to cover operational costs. Daily sales are capped at a maximum of 10% of the planned amount, and sales are limited to the top 20 cryptocurrencies by market capitalization across five won-based exchanges. Exchanges are prohibited from selling tokens on their own platforms to avoid conflicts of interest.

To enhance market stability, stricter listing standards are being enforced. A minimum circulating supply is now required before a token can trade, and market orders are temporarily restricted post-listing. “Zombie tokens” (low volume, thin market cap) and memecoins without clear utility will face increased scrutiny, with delisting enforced if liquidity or community engagement benchmarks are not met.

Real-name accounts will be available to exchanges and nonprofits from June onwards, with plans to extend this to listed firms and professional investors later in the year. These measures reflect a broader effort to regulate the market responsibly and attract institutional players while safeguarding against risk.

This regulatory tightening comes alongside political support for crypto innovation. Leading presidential candidates have expressed support for legalizing spot Bitcoin ETFs and exploring the creation of a won-backed stablecoin to improve financial autonomy and reduce reliance on foreign-backed stablecoins. These developments suggest a growing acceptance of cryptocurrencies within South Korea’s financial landscape, albeit within a carefully regulated environment.