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| Hwang Sei-woon |
Despite the fact that cryptocurrency trades are made in trillions of won every day, the digital asset markets in Korea still stay in the shadow area. There is an opinion that it is too early to incorporate digital assets, including cryptocurrencies, into the institutional system because there are still conflicting perspectives about the fundamentals of cryptocurrencies and the valuation methods for them are not clearly established.
However, in an era where non-face-to-face service provision is emerging as mainstream, the role of digital assets is very likely to expand in different ways. Therefore, the new administration under President Yoon Suk-yeol needs to focus its resources on defining the regulatory concept on digital assets and building up digital asset infrastructures so that related industries can make stable growth.
Digital assets are not equivalent to the cryptocurrencies. Digital assets in the traditional sense are defined as intangible assets that exist in electronic form and have property values. They include, but are not exclusive to photography, logos, illustrations, animations, audiovisual media, presentations, spreadsheets, digital paintings, word documents, electronic mail, websites and a multitude of other digital formats and their respective metadata. However, since the advent of block-chain technology and cryptocurrencies, the weight of tokens in digital assets has rapidly increased.
The digital asset market, which can be categorized into payment tokens, securities tokens, and utility tokens, clearly expands its frontier toward the financial markets. In particular, securities tokens are highly likely to deliver significant impact on corporate financing as they replace the traditional financing vehicles. Therefore, financial authorities should quickly prepare a regulatory system for digital assets to remove business-related uncertainties for the market participants and provide an investor protection system for digital assets.
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| gettyimagesbank |
Traditional financial companies along with big-tech including fintech companies will make key market participants in the digital asset market. Financial companies and big tech face serious restrictions on businesses development related to digital assets. Because digital assets are not properly defined in the current regulatory framework, it is very difficult for them to invest in digital assets or provide services based on digital assets. Considering the rapid development of digital asset markets in Europe and America, it is quite possible that domestic players gradually lose their competitiveness in the digital asset markets due to institutional uncertainties.
The lack of investor protection is another serious problem. The daily cryptocurrency trading volume often exceeds that of the KOSDAQ market. Nevertheless, the level of investor protection in the cryptocurrency trading market is extremely poor. The trading mechanism for digital assets is very similar to the securities trading system. This implies that the investor protection principles and strategies in the capital markets can work as a useful benchmark in building up the investor protection regulations in digital assets.
It will be necessary to safely protect investors' assets from the bankruptcy of the cryptocurrency exchange by separating investor accounts from the cryptocurrency exchange. It is also important to strictly separate the issuance and the trade of digital assets to minimize conflicts of interest among investors, issuers, and exchanges.
The future of cryptocurrencies is still quite unclear. However, the digital asset markets including cryptocurrencies, are expected to grow steadily. The major growth field will be the capital market. The new administration needs to set up related acts on digital assets to clarify the business scope of the digital asset industry, remove market uncertainties, and build up market infrastructure along with investor protection requirements.
At the same time, it will also have to prepare measures to support the growth of digital asset-related businesses and to pursue fintech innovation continuously. The vehicles to give temporary exemption from the existing financial regulations for the tech-ventures with an experimental business model in digital assets should be part of the regulation framework.
The digital asset market would have high growth potential and is likely to emerge as an important factor in the Korean economy. It will bring about significant changes in many industry sectors, including the financial industry. Therefore the new administration has to pave the way for the market's development and provide properly designed regulations.
The writer is a senior research fellow at the Korea Capital Market Institute.
