[Opinion] Martial law in South Korea and the crypto market outlook
Political Instability in South Korea and the Cryptocurrency Market
This opinion piece excludes political views on the recent martial law situation in South Korea. It focuses only on the impact and short-term outlook for the blockchain and cryptocurrency investment market.
TL;DR
Market Shock: The declaration of martial law triggered a massive sell-off on local cryptocurrency exchanges. The sell-off totaled approximately $33.3 billion. Bitcoin's price dropped to $62.3K, and the local market briefly recorded the highest trading volume globally.
Investor Exodus: Price instability and system crashes on local exchanges are expected to drive Korean investors toward overseas exchanges and DeFi platforms.
Industry Shrinkage: Political instability is driving Korean blockchain projects to relocate overseas. Major legislation, including the Virtual Asset User Protection Act, is likely to face delays.
1. Introduction
Last night's sudden declaration and lifting of martial law by President Yoon Seok-yul sent shockwaves through South Korea's cryptocurrency market. Bitcoin's price dropped to $62.3K on Upbit, the country's largest exchange. Upbit and Bithumb, the two major South Korean exchanges, recorded 24-hour trading volumes of $26.9B and $6.4B, their highest levels this year. These figures reflect a massive sell-off by South Korean investors after the declaration. During this period, South Korean exchanges briefly ranked first globally in trading volume. This highlights the extreme volatility of the Korean market.
2. Declining Trust in KRW-Based Assets and Rising Demand for Crypto
The martial law situation has severely damaged trust in Korean won-based assets. Instability in the stock and bond markets is likely to increase as foreign capital exits the country. As a result, investors are shifting their focus to decentralized assets like cryptocurrencies.
With geopolitical risks rising, investors are turning to cryptocurrencies to protect their assets. Bitcoin and other major cryptocurrencies attract interest because they operate independently of government control. In past crises, such as the Hong Kong protests and the Russia-Ukraine war, cryptocurrencies served as safe havens.
3. The Double-Edged Sword of Tightened Regulation and Accelerated Movement of Exchanges Overseas
South Korea's cryptocurrency exchanges maintain high security through strict travel rules and KYC (Know Your Customer) regulations. The Act on Reporting and Using Specified Financial Transaction Information strengthened anti-money laundering (AML) measures. It also improved investor protection. These efforts have positioned Korea as a leader in regulatory compliance.
However, the crash exposed the double-edged sword of tighter regulations. Strict rules have maintained the reverse Kimchi premium. This widened the price gap with global markets and made rational decisions harder for investors.
The sharp price drop and system instability on local exchanges damaged investor trust. Upbit and Bithumb experienced server crashes due to an overnight trading volume of $33.3 billion. Unlike overseas exchanges, this instability made local exchanges appear unreliable to investors.
These issues are expected to accelerate the migration of South Korean investors to overseas exchanges and DeFi platforms. Binance and Coinbase offer stable trading environments and diverse financial products. These features make them attractive options for South Korean investors.
4. Accelerated Offshoring of Korean Blockchain Projects
Political instability is expected to hurt the investment climate for blockchain projects in South Korea. Many major projects have already moved overseas, and this trend is likely to continue. Nexon's blockchain arm, Nexpace, relocated to Abu Dhabi. Klaytn and LINE Finschia's Kaia Foundation moved to Singapore. Wemade's Wemix shifted to Dubai. These companies chose blockchain-friendly countries to avoid regulatory uncertainty and political risks in South Korea. More projects are expected to relocate to Singapore and the UAE, where regulations remain clear and stable.
The relocation of blockchain startups overseas is raising concerns about a potential brain drain. This trend could weaken the competitiveness of South Korea's blockchain industry. At a time when Web3 and blockchain technology are rapidly advancing, the loss of talent may have long-term negative effects on Korea's technological edge. This outflow is deepening the sense of crisis within the industry.
The impeachment issue is also expected to delay major legislation. Laws like the Virtual Asset User Protection Act, currently under discussion in the National Assembly, are likely to face setbacks. These delays may further hinder the institutionalization of South Korea's cryptocurrency market.
5. Conclusion
The martial law situation exposed the structural weaknesses of South Korea's cryptocurrency market. Overnight, $33.3 billion in transaction value disappeared, and servers on major exchanges were down. Extreme price volatility occurred, with significant price gaps compared to global exchanges. These events highlighted the political risks in the market and the fragility of the current trading system under stress.
Market instability is expected to continue in the short term. However, with appropriate institutional improvements and system enhancements, this could serve as a turning point. Such efforts could strengthen the stability of the Korean cryptocurrency ecosystem and promote globalization. The direction of future developments deserves close attention.
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