South Korea is generally known as a major cryptocurrency hub, but it is currently in a rather tough predicament that has started to resemble a full-blown existential crisis, The Korea Times reports.
The fledgling industry is currently facing some major headwinds, including plunging trading volumes, growing regulatory scrutiny, and a rather controversial tax initiative.
Moreover, investor confidence has taken another significant hit due to Bithumb, one of the leading cryptocurrency exchanges in South Korea, experiencing an operational disaster.
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Capital flight
According to the data provided by the Bank of Korea (BOK), the value of digital assets held by Upbit, Bithumb, and other key players, such as Korbit, Coinone, and Gopax, has essentially careened. They have now collapsed to just 60.6 trillion won ($41.4 billion) by the end of February 2026.
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Average daily trading volume experienced an equally sharp decline. Daily volumes plunged to roughly 4.5 trillion won by late February.
Harsh regulation
Financial authorities are set to implement revised rules to dramatically strengthen anti-money laundering (AML) oversight.
Crypto transfers exceeding 10 million won to overseas exchanges will be automatically categorized as "suspicious." Moreover, they will be reported directly to the Financial Intelligence Unit (FIU). The local crypto lobby is strongly pushing back against this measure (but seemingly to no avail).
A tax proposal
Moreover, the government plans to slap the industry with a 22 percent tax on cryptocurrency gains starting next year.
Authorities are only capable of tracking transactions efficiently on the five local won-based platforms. Hence, the tax discrepancy will highly likely accelerate capital outflows.
The "ghost coin" scandal
To make matters worse, the Bithumb crypto giant recently faced a major scandal.
In February, a simple (but extremely costly) clerical error in Bithumb's event reward system caused the exchange to mistakenly distribute 620,000 Bitcoins (worth approximately 60 trillion won at the time). The users were initially supposed to receive 620,000 won as an award.
Users were quick to sell approximately 1,788 of the misallocated Bitcoins before Bithumb even managed to implement a rollback.
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The order books filled up with "ghost coins" and temporarily crashed the local price of the leading cryptocurrency. Bithumb had only 46,000 actual Bitcoins in its reserves.
Bithumb recovered 99.7% of the funds, but it also brought lawsuits against users to recover 7 Bitcoins that remained unreturned.
Due to the incident, the BOK urged local exchanges to adopt automated circuit-breaker mechanisms that help to withstand abnormal volume spikes in traditional markets.
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