InterviewWhat Korea risks without countrywide vision for digital assets

European Commission Advisor Peter Kerstens / Courtesy of Kerstens

Should Bitcoin be called a virtual asset or a digital asset? Should putting money into these instruments be considered investment or speculation? Does Korea want to foster innovation, or prioritize regulation for consumer protection? And how can the country maintain capital controls if a Korean won-pegged token is introduced?

These persistent questions highlight Korea’s complex position in an increasingly digital world.

While many countries are pushing forward with legislation — such as the U.S.’ GENIUS (Guiding and Establishing National Innovation for U.S. Stablecoins) Act and the European Union’s Markets in Crypto-Assets (MiCA) Regulation — industry observers argue that Korea remains on the sidelines, despite its technological strength and market potential.

Against this backdrop, Peter Kerstens, the European Commission’s advisor for financial sector digitalization and cybersecurity, warned that if Korea fails to set the right regulatory framework, many local players may choose to launch projects or conduct trading activities offshore.

"You have to take a position as a jurisdiction — where do you want to end up? Do you want to reap the benefits and opportunities of this process, or do you think that the risks and the concerns outweigh the benefits?" Kerstens told The Korea Times in a recent video interview.

"If you try to negotiate your legislation without having clearly defined objectives, it becomes very difficult. People will keep debating the fundamental purpose of the law and whether crypto assets are good or bad," Kerstens added.

That is exactly what seems to be happening in Korea. Although the administration under President Lee Jae Myung, along with both ruling and opposition parties, has begun to recognize the industry’s potential, the country remains mired in outdated narratives and policy inertia.

Under current definitions, investing in virtual assets is still officially classified as speculation, and these assets are considered to lack intrinsic value. This fundamental stance, which took shape during the COVID-19 investment boom, continues to influence policymaking today.

Lawmakers vote to pass the Virtual Asset User Protection Act during a plenary session at the National Assembly in Yeouido, Seoul, June 2023. The law took effect in July 2024. Newsis

Ironically, despite the government’s cautious approach, collaboration between traditional corporations and crypto firms is accelerating. Public forums and policy debates are expanding, and Korea ranks among the top nations globally in retail crypto investment.

To date, the only law directly related to the industry is the Virtual Asset User Protection Act, which came into effect in July 2024. While the law emphasizes user protection and regulatory compliance, it leaves large segments of the industry untouched.

Although several bills have since been introduced in the National Assembly, most remain stalled due to a lack of broad national consensus. Industry insiders have told The Korea Times that the absence of clear regulation is more difficult to navigate than strict oversight.

"The regulators and legislators did not seem to have a vision of where they wanted to end up," Kerstens said, reflecting on his previous visits to Korea. "It’s not that I understand Korean politics deeply, but from what I’ve seen, it’s very tribal. Two sides cancel each other out, and that creates a kind of deadlock."

Critical policy questions

Kerstens stressed that there is no inherently right or wrong way to regulate digital assets. Every country must make decisions based on its own economic structure and political priorities.

"Europeans are generally more conservative when it comes to digital assets, investment and innovation," he said. "In that respect, Korea may offer greater opportunity. But realizing that opportunity might also require stronger measures to prevent market overheating — a decision the authorities must make."

Another key, and often overlooked, aspect of Korea’s policy landscape is its strict capital controls. Drawing from its experience during the 1997 Asian financial crisis, Korea has maintained tight regulation of its foreign exchange market. It is also effectively prohibiting foreign investors from trading crypto on domestic platforms.

Prices of cryptocurrencies are displayed on an electronic board at the Bithumb Lounge in Seoul, August 25. Yonhap

"Capital controls come with a number of downsides, in my view, but they also offer certain advantages," Kerstens said. "A question for the Korean central bank and authorities is, are you willing to give up those advantages that come with such control?"

"You can’t have stablecoins and maintain strict capital controls at the same time. Tokens are highly transferable. It’s almost impossible to keep them within Korea’s borders. Once they’re tokenized, they move. This is a fundamental economic and monetary debate which has little to do with crypto technology or ideology," he said.

Kerstens continued, "It’s about whether Korea can continue to operate a closed monetary policy while its industrial base is so globally integrated. That’s the real issue, and an interesting one."

Lessons from MiCA

Reflecting on Europe’s own regulatory journey, Kerstens shared insights from the drafting of MiCA. When the process began, he said, the prevailing sentiment was that the European Union needed to establish clear oversight of crypto assets in order to harness their potential benefits.

"If they want to do it, they can do it within the European Union, within the regulatory sunlight," Kerstens said.

In response to criticisms that MiCA is overly regulatory and burdensome — particularly for startups — he reaffirmed the position: The crypto market is part of the financial system, and anyone handling people’s money must comply with financial regulations.

"If you are smart enough to develop a smart contract, or if you are smart enough to issue crypto assets, or if you are smart enough to code up a trading platform, then you’re definitely smart enough to comply with MiCA," he added, highlighting the importance of a consistent vision within a country or region.

Despite Korea’s ongoing challenges, Kerstens believes the country has a rare opportunity to take the lead in tokenization and digital asset development. He also acknowledged that MiCA is not without flaws, but underscored the importance of action while the political climate allows it.

"It’s crucial to act when the political window of opportunity opens, because it closes quickly," Kerstens said. "In that context, remember that the perfect is often the enemy of the good. Korea has a dynamic market and is a global technology leader. But if it wants to fully explore the potential of this new industry, it can’t afford to keep one hand tied behind its back."