Experts warn crypto ownership cap may hurt competitiveness

Bitcoin prices are displayed on a screen at the Bithumb Lounge in Seocho District, Seoul, Tuesday. Newsis

Academic and legal circles, along with the virtual asset industry, are increasingly scrutinizing the government’s plan to cap major shareholder stakes in crypto exchanges, noting that the proposal falls short of providing sufficient legal grounds or a convincing industrial policy rationale, according to industry officials and politicians Wednesday.

The measure would limit the largest shareholder’s stake to about 15 to 20 percent, reflecting the view of the Financial Services Commission that crypto exchanges function as “quasi-financial institutions” because they hold client assets in custody, facilitate transactions and manage listings.

The proposal has emerged as a key issue in drafting the tentatively titled Digital Asset Basic Act, widely referred to as the second phase of virtual asset legislation, with attention focused on how the ruling Democratic Party of Korea (DPK) will ultimately proceed.

Experts stress that the regulation requires thorough review before legislation, given its potentially significant impact on industry growth, legal stability and global competitiveness.

Attorney Kim Hyo-bong of Bae, Kim & Lee warned that the measure may run counter to the constitutional principle of proportionality. Kim previously worked at the Financial Supervisory Service for 11 years.

“Policymakers should weigh whether the change was foreseeable, how severe potential losses might be and whether sufficiently compelling public interests justify the restriction,” Kim said.

He added that crypto exchanges differ structurally from banks because they do not create credit and are not recipients of public bailout funds. They do not hold the monopolistic position nor operate under the strict licensing framework applied to securities exchanges, he said, arguing that these factors weaken the case for comparable ownership limits.

He warned that abrupt regulatory shifts could dampen investment and entrepreneurship, push domestic firms to relocate abroad and increase reliance on overseas operators.

Kim Yoon-kyung, a professor at Incheon National University, underscored that while many countries conduct qualification checks on crypto executives and shareholders, it is uncommon to legally limit how much equity major owners can hold.

The professor cautioned that forced dilution could heighten management uncertainty and trigger control disputes, ultimately undermining competitiveness and innovation.

Bithumb CEO Lee Jae-won, right, speaks during an emergency inquiry at the National Assembly in Seoul, Feb. 11, over a massive bitcoin misallocation incident. From left are Financial Services Commission Vice Chairman Kwon Dae-young, Financial Supervisory Service Gov. Lee Chan-jin and Bithumb CEO Lee. Yonhap

The governing party itself is divided on the issue. The party leadership has broadly supported the government’s tougher stance, particularly after a recent bitcoin misdistribution incident at Bithumb.

On Feb. 6, the country’s second-largest cryptocurrency exchange mistakenly credited users with 2,000 bitcoins each instead of distributing bitcoins worth 2,000 won ($1.40) during a promotional event, resulting in an erroneous payout of 620,000 bitcoins. The amount far exceeded the exchange’s reported holdings of 42,800 bitcoins, raising concerns that the incident exposed deeper flaws in internal controls and ledger management beyond a simple input error. The case has reinforced calls for stronger governance oversight.

In contrast, the DPK’s digital asset task force maintains that it would be more practical to tighten background checks on major shareholders, similar to those used for financial companies, rather than imposing ownership caps.

It argues that reducing ownership stakes does not necessarily enhance public interest safeguards and warns that abrupt share sales could destabilize management in a startup-driven industry.

Rep. Ahn Do-geol of the DPK noted that several issues remain unresolved and require further consideration, suggesting a bill is unlikely to be introduced this month.

“The task force will continue refining its proposal through mid-March. Although the government and party leadership broadly agree on the direction of regulation, the party has yet to finalize its official stance,” he said.