As cryptocurrencies soared toward the end of 2020, investors were taking special note of their performance in a few key markets. South Korea is one of them. In March 2020, the South Korean National Assembly passed new legislation that paved the way for the regulation and legalization of cryptocurrencies and crypto exchanges.
This action was taken in recognition of the burgeoning growing cryptocurrency ecosystem even in the midst of the COVID-19 epidemic. The legislation was designed to oversee an emerging industry and develop rules around anti-money laundering processes.
- Cryptocurrencies are popular investments among South Korea's young generation who see them as a path to prosperity in a context of persistently high unemployment.
- South Korea has long been an early adopter of new technology, and the culture is such that people are quick to embrace new technological innovations and opportunities.
- Cryptocurrencies are stateless investments that appeal to South Korean investors wary of the political climate and their proximity to the threat posed by North Korea.
South Korean investors have been eager to invest in digital assets and cryptocurrency markets. According to 2021 survey data, 40.4% of 1,885 workers polled noted that they had invested in cryptocurrency. Remarkably, about 49.8% of South Korean workers aged 30 years to 39 years said they have invested in cryptocurrencies. Workers in their twenties followed with about 37.1%.
This data provides meaningful insight as to what appears to be South Korean investor acceptance of blockchain and cryptocurrencies. Embracing a positive outlook fueled the popularity of making investments into what many South Koreans consider the future of finance.
However, the excitement shared by South Korean digital asset investors has not come without consequence—as the excitement has attracted the attention of criminals and regulators alike. As a result, South Korea is in the midst of a cryptocurrency crackdown intended to improve exchange transparency, reduce criminal activities like money laundering, and help provide a layer of regulatory safety for crypto investors.
What Is the Allure of Cryptocurrencies for South Korea?
Several newspaper articles and reports have analyzed the affinity of South Koreans for cryptocurrencies and come up with theories for their popularity. Broadly those theories can be condensed into three.
The first reason for the popularity of cryptocurrencies is the prevailing economic conditions in the country. Even though it is a fairly large and prosperous one, the South Korean economy suffers from a youth unemployment problem. During 2020, the unemployment rate ranged from 7.5% to 11%, continuing a similar pattern into 2021. The youth unemployment rate reached 10% in the months of February, March, and April 2021. In May, the unemployment rate decreased to 9.3%, and in June, the rate dropped further to 8.8%.
The government unveiled a program to provide incentives to small and medium-sized enterprises to hire young workers. However, after the Bitcoin bust of 2017, cryptocurrencies established themselves as a possible way to financial stability in 2018 for young South Koreans living in a hierarchical society with expensive living costs and a fiercely competitive employment market.
“For young Koreans, cryptocurrency seems like a rare shot at prosperity,” an article on the online publication The Verge states. The same article quotes a 20-something journalist who opines that cryptocurrency investments are also a means for a largely homogenous and well-educated workforce to distinguish themselves from peers.
Familiarity with micropayment transactions is another reason for the popularity of cryptocurrencies. South Koreans have long been early adopters of technological innovation, whether it is social networks or video games. It also has the world’s fastest Internet speeds and a well-developed telecommunication system to facilitate mobile payment systems. Japan, another nation where cryptocurrency trading is popular, has a similar story.
A robust gaming industry has made South Koreans comfortable with electronic micropayments, an idea that is yet to take hold in the West. For example, Hangame, a Korean gaming company, had revenues of $30,000 per day on micropayments of 50 cents each back in 2001, when online casual gaming was mostly free. By the end of the year, the same company was earning $80,000 per day and, within three years, it had hit $93 million for the year in revenue.
Businesses had cropped up around its games as well as black markets. While cryptocurrency-related businesses have yet to see similar revenues, they may be poised to do so now that the South Korean government is putting the appropriate regulations in place.
The third reason for the popularity of cryptocurrencies is political uncertainty. South Korea’s neighbor, North Korea, is categorized as a “state of concern.” North Korea has made rapid progress in its nuclear weapons program, which it claims is necessary to defend itself against a possible US invasion. In early 2021, the nation unveiled a submarine-launched ballistic missile described as "the world's most powerful weapon." This reveal was overseen at a parade by leader Kim Jong-un and just days before the inauguration of Joe Biden as US president.
Because Bitcoin is not attached to any state, it appeals to investors who are wary of North Korea’s intentions.
The Bottom Line
A combination of political uncertainty, familiarity with micropayment systems, and economic problems have made cryptocurrencies an attractive option for South Korean investors. The country has always been an early adopter of key world-transforming technologies. It could be the case that the country may lead the way once again by incorporating cryptocurrencies into mainstream trading.
Investing in cryptocurrencies and other Initial Coin Offerings ("ICOs") is highly risky and speculative, and this article is not a recommendation by Investopedia or the writer to invest in cryptocurrencies or other ICOs. Since each individual's situation is unique, a qualified professional should always be consulted before making any financial decisions. Investopedia makes no representations or warranties as to the accuracy or timeliness of the information contained herein. As of the date this article was written, the author owns small amounts of bitcoin.