South Korea entered 2025 with a volatile political climate, surging retail crypto interest, and a tightening grip on the digital asset space. After the failed martial law attempt by former President Yoon Suk Yeol in December 2024, the country faced political instability and social unrest. In the aftermath, lawmakers accelerated regulatory measures for the crypto industry while shelving a long-delayed crypto tax — a move driven by both economic necessity and political calculation.
Crypto Tax Delayed Again — Relief Until 2027
South Korea’s controversial 20% capital gains tax on cryptocurrency faced another delay. Legislators from all major parties supported the postponement, extending the tax holiday until 2027. This marked the third time the country pushed back implementation. Officials cited multiple reasons — including enforcement challenges, fears of capital outflows, and a lack of clarity following President Yoon’s impeachment.
The delay delivered temporary relief to millions of retail traders and startup investors. Lawmakers argued that premature taxation could drive innovation abroad and discourage participation in the local Web3 ecosystem. They also acknowledged the state’s limited capacity to track crypto gains accurately, especially when users transact across decentralized platforms and foreign exchanges.
Cybersecurity Threats from North Korea Prompt Government Response
In early 2025, South Korea joined the United States and Japan in issuing a joint warning against North Korean cyberattacks targeting crypto assets. Authorities named the Lazarus Group in multiple incidents, including the 2024 breaches of India’s WazirX and South Korea’s own Upbit.
The joint statement emphasized the increasing sophistication of state-sponsored hackers. South Korea’s National Intelligence Service (NIS) urged exchanges to enhance their defense systems and adopt AI-driven threat detection. Regulators also encouraged platforms to share threat intelligence more actively with government agencies.
Crackdown Begins: The Virtual Asset User Protection Act in Action
The Financial Services Commission (FSC) initiated a wave of enforcement actions at the beginning of the year. It held its second Virtual Asset Committee meeting in January but stopped short of greenlighting full corporate access to crypto trading. While discussions continued behind closed doors, the FSC introduced new rules targeting market manipulation and implemented stricter controls over stablecoins.
That same month, authorities took action under the Virtual Asset User Protection Act for the first time. A trader faced prosecution for orchestrating a pump-and-dump scheme, while Upbit received a temporary suspension for failing Know Your Customer (KYC) compliance on hundreds of thousands of accounts.
Upbit and fellow exchange Bithumb later agreed to compensate users who suffered losses and disruptions during the market chaos caused by the failed martial law announcement in late 2024.
Corporate Crypto Participation Takes Shape
In February, the FSC released a structured roadmap for institutional access to digital assets. The plan allowed corporate entities such as charities and universities to begin crypto trading through real-name accounts. These organizations could sell donated assets later in 2025.
The FSC framed this policy as a controlled pilot program. It sought to balance market innovation with strong Anti-Money Laundering (AML) and KYC frameworks. Authorities planned to expand access gradually, contingent upon successful audits and data reporting compliance.
Law Enforcement Doubles Down on Crypto Crime
Authorities ramped up efforts to fight crypto-related fraud. Police rearrested a repeat offender named Park, who allegedly ran a token scam involving the Artube (ATT) cryptocurrency. Investigators revealed that the scheme generated approximately $48 million through price manipulation and deceptive marketing.
Later that month, the Financial Intelligence Unit (FIU) imposed a partial suspension on Dunamu, the operator of Upbit. The FIU flagged Dunamu for multiple compliance violations, including dealings with unlicensed foreign platforms and lapses in KYC enforcement. Dunamu responded with a legal challenge. A court ruling in March allowed the exchange to resume onboarding new users while litigation continued.
Meanwhile, prosecutors formalized their crypto crime unit into a permanent task force. Since mid-2023, this division has recorded over 70 indictments and recovered nearly $500 million in stolen or illicitly acquired digital assets. The task force now includes prosecutors, regulators, forensic specialists, and intelligence officers.
Government Eyes Legal Framework for Spot Bitcoin ETFs
South Korean financial regulators began reviewing legal avenues for introducing spot Bitcoin exchange-traded funds (ETFs). The move followed the U.S. Securities and Exchange Commission’s landmark decision to approve similar products.
Interest surged among South Korean brokerage firms, which sought to offer crypto ETFs as part of diversified portfolios. The FSC and Ministry of Economy and Finance reviewed potential safeguards to prevent systemic risks and investor losses. Analysts expect a preliminary decision later this year.
Regulators Target Unlicensed Crypto Platforms
In March, authorities published a list of foreign crypto exchanges operating without local licenses. The FIU collaborated with major tech companies to block access and delist associated apps. Google removed 17 apps from its Play Store, while Apple followed with its own removals.
Officials warned that unregistered exchanges expose users to fraud, data breaches, and legal uncertainty. Regulators promised harsh penalties for platforms that continue to operate in defiance of the law. The campaign aligns with South Korea’s broader effort to tighten control over cross-border digital asset flows.
Crypto Adoption Grows — Even as Trading Activity Falls
Despite market volatility and tightening regulations, crypto ownership in South Korea continued to climb. By the end of Q1 2025, more than 16 million people held at least one crypto account — exceeding one-third of the nation’s population and surpassing domestic stock trader numbers.
However, overall trading activity dropped. Upbit’s trading volume fell by more than 30% quarter-over-quarter, according to CoinGecko. Analysts attributed the slowdown to reduced retail speculation, stricter regulations, and the global cooldown following Bitcoin’s halving event in April.
Still, South Korean users showed long-term confidence in digital assets, particularly among younger investors and gig workers. Many used crypto for savings, remittances, and peer-to-peer payments.
Crypto Emerges as a 2025 Election Issue
With South Korea’s presidential election moved up to June 2025, digital assets have become a major campaign topic. Conservative candidate Hong Joon-pyo promised to align national policy more closely with the U.S. model, focusing on innovation, transparency, and institutional participation.
However, his credibility faced scrutiny. During a press conference, he admitted to not understanding central bank digital currencies (CBDCs), raising doubts about his preparedness to oversee such a complex and fast-evolving sector.
Opposition candidates also weighed in. Some promised increased consumer protections and stricter controls on large exchanges. Others pushed for decentralized finance (DeFi) innovation zones and public-private partnerships for blockchain infrastructure.
Conclusion: A Nation at a Crypto Crossroads
South Korea’s crypto journey in 2025 reflects a nation grappling with rapid technological change, deep political transitions, and the global tug-of-war between regulation and innovation. The government’s actions — from delaying taxes and prosecuting fraud to targeting hackers and exploring ETFs — highlight the complexity of managing a maturing crypto market.
As the presidential race heats up and international dynamics shift, South Korea stands at a crucial intersection. The choices its leaders make this year will determine not only the future of its digital economy but also its role as a regional blockchain powerhouse.
