South Korea’s exchange ownership cap puts Bitcoin investors on alert

Lawmakers and financial regulators in South Korea have agreed on a 20% ownership cap for key shareholders of crypto trading platforms, raising concerns among crypto investors. Bitcoin investors are watching closely as South Korea moves to tighten control over its cryptocurrency industry. 

All trading platforms will be subject to the standard, with a three-year adjustment window once the law is enacted. Nevertheless, smaller exchanges with market share below a set threshold will be given three more years to adapt.

That means Upbit and Bithumb, the two exchanges that dominate around 90% of the market, will face a three-year deadline to liquidate key shareholder holdings. In contrast, Coinone, Korbit, and GOPAX may be granted a transition window of up to 6 years.

The ruling party’s Digital Asset Task Force (TF) and Financial Services Commission (FSC) also discussed possible exemptions allowing up to 34%. However, only newly formed businesses would qualify for the higher limit, which aligns with the Commercial Act’s shareholder veto provision.

Following the recent development, some crypto traders are preparing for potential fallout. Nonetheless, Bitcoin prices haven’t budged yet, holding firm above $72,870, up 7% in the last 24 hours.

While the ownership cap does not directly target Bitcoin trading, analysts say major regulatory changes in a large crypto market like South Korea can still influence global sentiment.

Ownership cap plan still has to pass through the National Assembly

Back in January, when the FSC first proposed capping ownership, it noted it would help mitigate risks associated with concentrated shareholding. At the time, the Digital Asset Exchange Alliance (DAXA), which represents the nation’s five leading cryptocurrency platforms, including Upbit and Bithumb, voiced objections to the plan. The organization maintained that restricting significant shareholdings would only hinder the crypto industry’s growth trajectory and compromise its structural integrity.

For now, the plan is still at a preliminary stage and must go through the national assembly process before it can be enacted. A National Assembly representative is expected to put forward the bill, although the sponsor has not been revealed. Even with a formal proposal, the bill may face an uphill battle before it’s approved. The opposition is resisting the measure, and a few ruling party members oppose shareholder restrictions as well.

Speaking on the possible policy implementation, a source within the industry even cautioned: “This is unprecedented worldwide and has low global consistency. If it is excessively introduced, it could have serious negative effects such as limited competition, slowed innovation, and strengthened barriers to entry.”

The ownership restriction is set to be integrated into the Digital Asset Basic Act, the upcoming legislation covering the country’s crypto industry. The legislation will also include regulations on stablecoin issuance and crypto exchange-traded funds.

South Korea has been working on a number of crypto regulatory proposals

Meanwhile, South Korea’s National Assembly passed adjustments to the licensing system for virtual asset service providers earlier this year. Executives and major shareholders are now subject to more comprehensive background checks under the revised system. The updated rules permit authorities to consider involvement in drug trafficking, tax evasion, antitrust violations, and similar serious financial crimes during licensing assessments.

Moreover, the National Assembly is still discussing other frameworks, including the Capital Market and Financial Investment Business Act and the Act on the Protection of Virtual Asset Users. Democratic Party lawmaker Kim Seung-won is pushing for changes to the proposals that would require anyone advising on investments or promoting trading in virtual assets or financial products to declare their holdings and any potential conflicts of interest.

Just recently, South Korea’s finance minister also committed to significant reforms to government digital asset management, following failures that exposed oversight and custody gaps.

In the past, authorities, including police and tax officials, have been found to have improperly handled seized digital assets, failing to retain private keys and revealing seed phrases. Thus, Deputy Prime Minister and Minister of Finance and Economy Koo Yun-cheol is advocating for system changes. Koo commented, “Together with relevant agencies such as the Financial Services Commission and the Financial Supervisory Service, the government will inspect the current status and management practices of digital assets held and managed by government and public institutions through seizure and other enforcement measures.”

Sharpen your strategy with mentorship + daily ideas - 30 days free access to our trading program