South Korea Set to Reshape Crypto Exchange Ownership, Sparking Industry Debate

A display board at the Upbit customer center in Seoul’s Gangnam district shows prices of bitcoin and other cryptocurrencies. [YONHAP]

South Korea is poised to significantly alter the landscape of its cryptocurrency exchange industry with a proposed 20 percent cap on major shareholders’ stakes. The move, currently under review as part of the Digital Asset Basic Act, aims to bolster investor protection and mitigate potential conflicts of interest, but faces opposition and could trigger substantial ownership shifts among key players.

Impact on Major Exchanges: A Mixed Bag

While the proposed regulation may have a limited impact on market leader Upbit, other prominent exchanges like Bithumb, Coinone, and Gopax could face considerable restructuring. Upbit’s chairman, Song Chi-hyung, currently holds approximately 25.52 percent of Dunamu, the exchange’s operator. A 20 percent cap would require a relatively modest reduction in his holdings.

Dunamu’s ongoing stock swap with Naver Financial further cushions the impact, with Naver’s projected stake expected to remain below the proposed limit. Yet, the situation is drastically different for Bithumb, where Bithumb Holdings controls around 73.56 percent of the exchange. Compliance with the new rule would necessitate a significant divestment.

Founder-Led Exchanges Face Disruption

Coinone, a traditionally founder-centric exchange, could also experience substantial changes. Founder and CEO Cha Myung-hoon and affiliated entities collectively own roughly 53.44 percent. The cap could disrupt this long-standing ownership structure.

Gopax, with Binance holding approximately 67 percent, is also expected to be affected. The government has indicated that foreign corporations will be subject to the same rules, potentially forcing Binance to reduce its stake.

Legislative Hurdles and Opposition

Despite government support, the proposal faces legislative challenges. Opposition lawmakers have raised concerns about potential violations of constitutional property rights and freedom to conduct business. The National Assembly Research Service has echoed these concerns, warning of potential legal challenges.

The composition of the National Assembly’s political affairs committee, where the bill will be reviewed, further complicates the process, as the chair belongs to the opposition party.

The Broader Trend: Increased Regulation of Crypto Exchanges

South Korea’s move reflects a global trend toward increased regulation of the cryptocurrency industry. In September 2021, South Korea began regulating virtual asset service providers. This latest proposal builds on that foundation, aiming to create a more stable and transparent market.

The focus on ownership structure is particularly noteworthy, as it addresses concerns about concentrated power and potential manipulation within exchanges. Similar discussions are taking place in other jurisdictions, including the United States and the European Union.

FAQ

• What is the proposed ownership cap? A 20 percent limit on the stake any single major shareholder can hold in a South Korean cryptocurrency exchange.
• Which exchange will be most affected? Bithumb is expected to be the most significantly impacted, as its holding company currently owns a substantial majority stake.
• Will this affect Upbit? Likely to a lesser extent, as its current ownership structure is closer to the proposed limit.
• What is the Digital Asset Basic Act? Often referred to as the second phase of cryptocurrency legislation in South Korea.

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Did you grasp? Upbit became the top global cryptocurrency exchange in terms of 24-hour trading volume approximately two months after its launch in 2017.

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