The recent slump in cryptocurrency markets has translated to bad news for its investors and enthusiasts all over the world. Except in two countries. Even as governments and corporations the world over are shutting the door on coins and associated products, Japan and South Korea hold out hope for their inclusion into the existing financial ecosystem. Indeed, the two countries are likely to figure prominently in any account of a comprehensive history of cryptocurrencies because they have played an outsized and pioneering role in developing the ecosystem for digital coins.
Retail investors there have embraced cryptocurrencies with fervor. The Japanese yen and South Korean won are among the most-traded currencies on the world’s cryptocurrency exchanges. In recent years, South Korean investors have propped up notable cryptocurrencies, such as ethereum and ripple, with their “Kimchi Premium."
Businesses, too, are not far behind. An increasing number of establishments in both countries have begun accepting bitcoin for products and services. For example, Bithumb, South Korea’s biggest cryptocurrency exchange, recently announced a partnership that could spread the use of cryptocurrency throughout the mainstream economy. According to a spokesperson from the company, the goal is to “ensure that spending cryptocurrencies is as easy as spending fiat money or cash.” (See also: South Korea Exchanges Move to Mainstream Cryptocurrency Use.)
A Case of Provenance and Revenues
Japan became the first country to legalize cryptocurrencies last year. The nation's Payment Services Act designates cryptocurrencies as virtual currencies. Even two massive hacks of its domestic cryptocurrency exchanges have not dissuaded regulators, who are working with the exchanges to institute stricter self-regulatory measures to prevent future recurrence. (See also: Japan's Biggest Bank Is Releasing Its Own Cryptocurrency In March.)
In retrospect, the Japanese affinity for cryptocurrencies is not surprising. The founding myth of bitcoin, the original cryptocurrency, attributes its creation to Satoshi Nakamoto. The world’s first cryptocurrency exchange, Mt. Gox, was also formed in Japan.
Catching Up to China
There are two reasons why Japan and South Korea are bullish on cryptocurrencies even as the world turns its back toward them.
The first has to do with innovation in financial technology. Blockchain, the underlying technology behind cryptocurrencies, is a game-changer for banking. Among other things, it enables cashless transactions and cross-border money transfers at little to no cost. With its primarily cash-based economy, Japan has lagged other, developed countries in innovating within its finance ecosystem. The situation is not much different in South Korea. Cryptocurrency technology will help both countries catch up quickly with neighboring China, which has surpassed them in transaction value involving financial technology.
There are solid financial reasons for Japan to support cryptocurrencies. According to Takashu Shiono, an economist with Credit Suisse in Tokyo, the country could mop up as much as $9.2 billion in tax revenues from cryptocurrency business, including capital gains from individual investors and corporations. They may also contribute as much as 0.3% to Japan’s GDP. That is not a figure to sniff at, when you consider that the Asian nation has regularly recorded growth figures of between 1% and 1.5% in recent times. South Korea has similar plans and plans to tax cryptocurrency trades.
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