For tech around the world, 2017 was the year of cryptocurrency. The heart-stopping volatility of Bitcoin and Ether is even more inflated in South Korea, where Bitcoin reached a whopping 25 million won ($24,000) on Dec. 8. With 2 million people buying into digital currencies, the Korean won processes the third-highest volume of Bitcoin transactions behind the dollar and yen.

That fire is still ablaze despite authorities eyeing heavy-handed regulations. South Korea has become a stage for the clash between conservative regulators and thrill-seeking investors. Here are five ways the cryptocurrency craze rocked South Korea this year.

1. South Korea has its first ICOs (May) 

South Korean fintech company Blockchain OS issued the country’s first initial coin offering in May. An ICO of 50 million BOScoins through a Swiss-based foundation finished in nine minutes in exchange for 6,900 Bitcoins. The volume of the ICO attracted a lot of attention and interest in the scene from South Koreans.

Soon after, ICON launched its ICX token through a Swiss-based foundation in September, raising 150,000 Ether (then $42 million) in its presale to power a blockchain that aims to hyperconnect the country. Glosfer, another startup, raised 15 billion won ($13 million) in an ICO pre-sale Sept. 25.

2. The Kimchi Premium hits new heights (July)

South Korea was swept mysteriously by Ethereum fever, leading to local prices hitting 30-50% above the global average. With such limited investment opportunities -- even most gambling is illegal -- the risk-takers were ready to pour hot money into the digital currency market.

Increased traffic during peak trading prices regularly brought down servers at the exchanges, where the so-called Kimchi Premium soared as high as 50% above global prices, notes See-eun Ha of The Blockchainers, a Korean YouTube channel.

“It really spurred the government to take regulatory action. Also, the government was probably very concerned about the unregulated arbitrage market,” he says. 

 

3. Major companies get into blockchain (May-October)

Large companies embraced the blockchain storm, with Samsung SDS joining the Enterprise Ethereum Alliance in May and banks experimenting with Bitcoin remittances. Kakao Corp, maker of KakaoTalk messenger, acquired fintech startup Dunamu to launch its own crypto exchange Upbit.

The biggest deal was gaming giant Nexon acquiring Korbit, the country’s first Bitcoin exchange, a milestone for a corporation taking the dive into cryptocurrencies despite regulatory uncertainties surrounding their exit success. 

“The fact that Nexon was willing to take on this regulatory risk indicates how positively they view the future of cryptocurrency,” says Steve Kim, foreign legal advisor at Seum Law. “Unlike typical game companies that have an interest in crypto primarily as it relates to the purchase of game items, Nexon’s acquisition indicates its interest in the industry as a whole.”

4. Government declares war on ICOs (September) 

As ICOs gained global momentum, the craze over the new financing method became impossible to ignore. While the South Korean government formed a task force in November 2016 to survey cryptocurrency trends, it was silent until September 2017 when it issued its first statement, noted Chan-sik Ahn and his tech team at HMP Law.

In early September, the Financial Services Commission distinguished between securities-type tokens and utility-type tokens and emphasized that it would regulate securities-type tokens, a line consistent with the position of regulators including in the U.S. and Singapore, notes Kim.

Many in the blockchain scene saw the regulatory statement as a relief, a sign that regulators were finally taking control. “Before the rush of middle school, high school and university students to invest in cryptocurrency, the market had a very large population of people over 50 years old who had money to spare. They were more susceptible to misinformation due to unfamiliarity with technology,” Ha says.

But it hardly tamed activity. After the price of Bitcoin rose rapidly and China stifled its cryptocurrency market in September, an influx of money flooded the Korean market, Ahn noted.

On Sept. 29, the task force stepped up its rhetoric to say it wanted to propose a legal amendment that would prohibit all ICOs, along with other heavy-handed regulations, thus bringing down the hammer on the new technology. But the local blockchain scene prepared to protest the ban, arguing the government - which does not recognize digital currencies as a financial product or legal tender - had no grounds to do so.

As of present, no ban - nor any other crypto regulation - has been enacted. But the September announcement has certainly set the tone for the government’s direction, Kim notes. Regulators said they were cracking down on crypto crimes such as multilevel Ponzi marketing schemes, ICO fraud and Bitcoin-based marijuana sales.

The FSC’s comments didn’t stop local startup Metaps Plus from launching PlusCoin in October as the first crypto issuance based in Korea rather than through an overseas foundation. “Unfortunately, no more ICOs dare to be scheduled in Korea due to the government’s September announcement,” Ahn says.

5. Government gears up for full-fledged regulation (December)

The government’s September announcements gave the local market an uneasiness that has only been compounded. December has been peppered with bombshell regulation proposals as the government accelerated its process of building a regulatory framework.

On Dec. 8, the Ministry of Justice took charge of the FSC’s task force - a signal in itself that regulators would take a stronger position to regulate and punish crypto-related activities in an effort to clamp down on alleged fraud or Ponzi schemes, Ahn said. Authorities are mulling corporate, value added and transaction taxes to gain income from the trade.

Since then, FSC officials have said they would consider soon taking regulatory actions on both ICOs and the cryptocurrency exchanges, he added. “It seems reasonable to take some time for the authorities to catch up with new technology, but the cryptocurrency trades boom has become so feverish in such a short time that the South Korean government has had to spend more time and expense to take control of it,” Ahn said.

Amid the chaos, the Korea Blockchain Association pledged its own self-regulations to tackle money laundering and other fraud.

The government also proposed measures that would require crypto exchanges to meet disclosure and reserve requirements. Concern has risen over asset protection after Bithumb, the largest local exchange, suffered hacks allegedly at the hands of North Korea, and smaller exchange Youbit filed for bankruptcy this week after a second hack. While this was first reported as a ban on exchanges, the objective is to require the exchanges to afford to pay back their users as necessary, Kim noted.

To restrict crypto-related inbound foreign investment, the government has asked banks not to process such remittances, Kim says. It is using a provision in foreign investment laws that allows rejection of foreign investment if it negatively impacts national security and public order. Banks are no longer accepting outbound crypto-related remittances either, he added.

“Apparently the government has told the banks to reject foreign investment related to cryptocurrency based on this law---this is, of course, not an official nor public position held by the government,” Kim says.

What This Means For 2018 

With such volatility both in the market environment and in regulations, it is difficult to predict what 2018 holds for South Korea’s crypto scene. The government has expressed a negative view on cryptocurrency, ICOs, exchanges and other trading, but even its announcements so far have been vague, Ahn notes.

He expects the government to legalize ICOs and crypto exchanges with strict requirements to prevent fraud, speculation or hacking, which should stabilize the cryptocurrency market.

“It says it could prohibit all ICOs and cryptocurrency exchanges to prevent fraud or speculation, but many experts point out that the government will not prohibit cryptocurrency entirely because the institutionalization of issuance or exchange of cryptocurrency is a worldwide trend, and such a drastic policy could hurt the freedom of the market,” he says.