South Korean Crypto Exchanges Face Wave of Closures Amid Regulatory Challenges

South Korea’s cryptocurrency market is undergoing a significant transformation, with several smaller exchanges shutting down due to increasing regulatory scrutiny and banking restrictions. According to new data released by the Financial Intelligence Unit (FIU) on February 7, the number of registered virtual asset service providers (VASPs) in South Korea has dropped by more than 26%, from 42 in 2023 to just 31 as of early 2025.

While South Korea has long been a hub for cryptocurrency trading, stringent compliance requirements and the inability of many exchanges to secure banking partnerships have led to an exodus of smaller firms. As regulatory uncertainty persists, the number of crypto exchanges in the country may decline even further.

Why Are Crypto Exchanges Shutting Down?

1. Strict Regulatory Framework

South Korea’s crypto market is one of the most highly regulated in the world. The government mandates strict compliance for exchanges to operate legally. The Special Financial Transactions Information Act, enacted in March 2021, requires all crypto exchanges to:

• Register as VASPs with the FIU.
• Obtain real-name bank accounts for fiat transactions.
• Implement robust anti-money laundering (AML) and know-your-customer (KYC) measures.

Exchanges that fail to meet these requirements face removal from the FIU’s registry, which effectively forces them out of business.

2. Difficulty in Securing Bank Partnerships

A major challenge for smaller crypto exchanges is the requirement to secure partnerships with local banks to facilitate fiat transactions. Under the government’s strict oversight, banks are reluctant to collaborate with smaller or lesser-known platforms due to concerns over fraud, money laundering, and compliance risks.

Without fiat trading support (Korean won or U.S. dollar), exchanges struggle to attract users. Token-only platforms that deal solely in crypto-to-crypto transactions find it difficult to compete with major players such as Upbit, Bithumb, Coinone, and Korbit, which have secured banking relationships and offer fiat trading services.

3. Capital Erosion and Financial Struggles

According to the FIU report, over 90% of the delisted exchanges faced severe financial distress before shutting down. Many were in a state of “complete capital erosion,” meaning they had exhausted their operating funds and were unable to sustain business operations.

Some of the well-known platforms that exited the market due to financial struggles include:

• GDAC
• ProBit
• Huobi Korea
• Bitrade
• Qubit
• Coinbit

These exchanges struggled to generate sustainable trading volumes, and without banking support, their revenue streams dried up.

The Impact of These Closures

1. Reduced Competition in the Market

The closure of multiple exchanges has led to market consolidation, benefiting the larger, more established platforms. Upbit, Bithumb, and Coinone now dominate the Korean crypto trading landscape, reducing competition and leaving fewer options for traders.

2. Investor Concerns and Trust Issues

The shutting down of exchanges raises concerns among retail and institutional investors about the stability of South Korea’s crypto market. Users who held funds on now-defunct platforms have faced difficulties withdrawing their assets, leading to a decline in trust in smaller exchanges.

3. Shift Towards Overseas Markets

Some South Korean crypto firms are choosing to relocate operations overseas to escape regulatory burdens. Instead of shutting down entirely, these exchanges are targeting more crypto-friendly jurisdictions, such as Singapore, Dubai, or Hong Kong, where compliance requirements are less restrictive.

Regulatory Uncertainty and the Future of South Korea’s Crypto Market

1. Stricter Regulations on the Horizon

The South Korean government continues to refine its crypto regulatory framework. The recent introduction of the Virtual Asset User Protection Act, set to take effect in mid-2025, is expected to impose even more stringent oversight on exchanges. Key provisions of this act include:

• Mandatory insurance coverage for exchanges to protect users from hacks and insolvency.
• Enhanced financial transparency and stricter reporting requirements.
• Increased penalties for non-compliance.

These measures aim to protect investors, but they also increase operational costs for exchanges, making it harder for smaller platforms to survive.

2. Potential for New Crypto Taxation Laws

Regulators in South Korea are also working on crypto tax reforms. A new tax policy expected in Q1 2025 will introduce capital gains taxes on crypto trading profits. While this move aligns with international standards, it may deter some retail investors and reduce overall trading activity.

3. Increased Focus on Security and Anti-Money Laundering

With rising cases of crypto-related fraud and money laundering, South Korean regulators are pushing for stronger AML measures. Exchanges must enhance security systems, implement transaction monitoring, and report suspicious activities. Platforms that fail to comply risk severe penalties or forced closure.

Survival Strategies for Crypto Exchanges in South Korea

With stricter regulations and banking challenges, South Korean exchanges must adapt to survive. Here are some potential strategies:

1. Strengthening Regulatory Compliance

Exchanges that invest in legal compliance, auditing, and transparency measures are more likely to gain regulatory approval and sustain operations. Partnering with compliance experts and legal teams can help exchanges navigate the evolving regulatory landscape.

2. Securing Banking Partnerships

Building strong relationships with local banks is crucial for survival. Exchanges should focus on enhancing security protocols, KYC processes, and risk management frameworks to gain the trust of financial institutions.

3. Expanding Beyond Crypto-to-Crypto Trading

Token-only exchanges should consider integrating fiat trading options by obtaining necessary licenses and banking support. Offering fiat onramps would make these platforms more attractive to users and investors.

4. Exploring Overseas Expansion

Crypto exchanges that struggle with South Korea’s regulatory environment may find success in expanding to other regions. Markets such as Singapore, the UAE, and the EU provide favorable conditions for crypto businesses.

5. Diversifying Revenue Streams

Exchanges can explore additional services beyond trading, such as:

• Staking and yield farming
• NFT marketplaces
• Blockchain-based financial services
• Institutional custody solutions

Conclusion

South Korea’s cryptocurrency market is undergoing a dramatic transformation as regulatory pressures and banking hurdles force smaller exchanges to shut down. While larger platforms continue to dominate, the shrinking number of registered crypto firms reflects the growing challenges within the industry.

As the government moves towards stricter oversight, exchanges must prioritize compliance, financial stability, and innovation to thrive. While some firms may exit the market, others will adapt and evolve, contributing to a more resilient and transparent crypto ecosystem in South Korea.

The coming months will be crucial in determining the future of South Korea’s crypto landscape. Will more exchanges collapse under regulatory weight, or will new strategies help firms survive and grow? Only time will tell, but one thing is clear—South Korea’s crypto market is entering a new era of regulation and consolidation.

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