South Korea's encryption policy in a dilemma: Contradictions among regulatory agencies become prominent

South Korea is undergoing a profound transformation in its cryptocurrency policy, consistently oscillating between "caution" and "openness". This inherent contradiction is not only reflected in the conflicting signals issued by the highest financial regulatory authorities and the enforcement departments, but also reveals the decision-makers' repeated weighing of the positioning of digital assets.

Signs of Policy Friction Emerging

Recently, financial supervisory agencies issued informal verbal instructions to several local asset management companies, requiring them to reduce their risk exposure to certain US-listed digital asset firms. This warning strictly referenced the 2017 policy that prohibits financial institutions from directly holding or purchasing equity in digital asset companies.

Regulators emphasize that current rules remain binding until formal regulatory updates are made. This move has caused confusion in the market, as it starkly contrasts with the recent signals of openness released by the highest financial regulatory authority. This "policy friction" is a typical feature of the regulatory transition period—when the blueprint for reform has not yet fully materialized, the inertia of enforcing old rules still exists. On one hand, regulators try to convey an open stance of "what can be done," while on the other hand, they reserve an exit route for potential risks through verbal warnings, essentially seeking a delicate balance between practical considerations and ideal visions.

Phased Lifting of Institutional Trading Ban

Previously, the highest financial regulatory authority announced that it would gradually lift the institutional encryption trading ban implemented in 2017. The regulators stated that the ban was initially aimed at curbing speculation and illegal activities, but the current market dynamics and the surge in domestic enterprises' demand for participation in blockchain, coupled with the improvement of key infrastructure, have led to a policy shift.

It is worth noting that this move is not merely a response to international trends, but is based on a comprehensive assessment of market maturity and risk control capabilities. With the implementation of relevant laws, South Korea has initially established a relatively complete compliance framework covering exchange licenses, customer due diligence, and asset custody. Regulatory authorities believe that continuing to strictly restrict institutional participation will instead stifle local capital and technology from embracing the wave of blockchain finance, resulting in missed development opportunities.

The new framework will be implemented in phases in 2025: in the first half of the year, charitable, educational, and law enforcement agencies will be allowed to sell encryption assets; in the second half of the year, listed companies and professional investors will be able to trade, promoting alignment of South Korean regulations with international standards.

Policy Crossroads: Cognitive Divide and Global Competition

The differing statements among regulatory agencies expose the fundamental cognitive differences regarding the essence of digital assets deep within South Korea's financial regulatory system. The highest regulatory authority tends to view Bitcoin and its derivatives as "programmable value carriers," emphasizing their potential in cross-border payments, corporate treasury management, and financial innovation; whereas the enforcement departments still place them within a negative framework of "speculation and bubbles," worrying that regulatory arbitrage and excessive leverage could exacerbate market volatility and distort liquidity, especially when domestic institutions heavily intervene.

This contradiction is not unique to South Korea. In 2024, multiple global financial centers have issued relevant licenses to traditional financial giants, promoting the tokenization of money market funds and Bitcoin strategies; several countries have also begun to incorporate institutional entry mechanisms into clear compliance frameworks. In contrast, South Korea's pace appears cautious and hesitant—like a left foot "chasing opportunities" and a right foot "alert to risks," trying to walk in parallel through the fog, but inevitably falling out of step.

The Growing Pains and Vision of the "Dual Footpath"

The division of regulatory signals has produced direct consequences: medium- and long-term funds are caught in a cautious wait-and-see approach. Asset management companies would rather keep their positions in overseas encryption stocks and ETFs in a regulatory gray area than rashly enter the unclear domestic market; domestic exchanges, while striving for licenses and expanding institutional business, must exhaust themselves in dealing with the constantly updated compliance "soft red lines," adding costs and uncertainty.

However, from a more macro perspective, this kind of growing pains may be a necessary stage in the natural maturation of policies. An aggressive and one-size-fits-all approach may trigger speculative frenzies and regulatory loopholes; while being overly conservative could leave the country lagging behind in the global digital economy. The key is whether South Korea can, in the coming months: revise the specific quantitative rules for financial institutions' holdings, clarify the mechanisms for cross-border capital flows and foreign exchange risk hedging, and integrate the intent to open up with prudent demands into unified regulations. Only in this way can "two steps running parallel" be transformed into "walking side by side".

What is most anticipated is how the stable entry of institutional capital will reshape the local encryption ecosystem. Regulators are not merely "pressing the brakes" or "accelerating", but are attempting to create a "buffer zone that balances safety and efficiency": guiding compliant funds to gradually integrate into the global digital asset network while ensuring market stability. This path is fraught with challenges, but once navigated, South Korea is expected to become a digital asset center with both financial innovation vitality and strict compliance advantages, following other Asian financial hubs.

Complex Signals of Multi-Center Evolution

Ultimately, South Korea's current encryption policy cannot be simply defined by a single "release" or "warning". It is a complex process of multi-center and step-by-step evolution, which not only includes adherence to the security boundaries of traditional finance but also harbors a keen hope for the future of financial technology. The core proposition moving forward is how to achieve precise alignment of policy rhythms, legislative progress, and market practices among different regulatory agencies. Only when regulation and innovation reach deep collaboration can South Korea truly move beyond the "cautious exploration" stage and actively embrace the next developmental era of digital assets.