South Korea is often regarded as a major cryptocurrency hub, but it is currently facing considerable hardship that has begun to escalate into a full-blown survival crisis. The Korea Times reports.
This emerging industry is currently facing several significant challenges, including a sharp decline in trading volume, increasing regulatory scrutiny, and a controversial tax initiative.
Additionally, investor confidence was once again shaken due to an operational disaster at Bithumb, one of South Korea’s leading cryptocurrency exchanges.
Capital flight
According to data provided by the Bank of Korea (BOK), the value of digital assets held by Upbit, Bithumb, and other major digital asset platforms such as Korbit, Coinone, and Gopax has significantly declined. As of the end of February 2026, the total value of these assets had plummeted to just 60.6 trillion Korean won (approximately $41.4 billion).
Daily trading volume also experienced a similarly sharp decline. By the end of February, daily trading volume plummeted to approximately 4.5 trillion Korean won.
Strict regulation
Financial regulators are set to implement revised rules to significantly strengthen anti-money laundering oversight.
Cryptocurrency transfers exceeding 10 million KRW to overseas exchanges will be automatically classified as "suspicious transactions" and reported directly to the Financial Intelligence Unit (FIU). South Korea's domestic cryptocurrency lobbying groups have strongly opposed this measure (though it appears to have had little effect).
A tax proposal
In addition, the government plans to impose a 22% tax on cryptocurrency gains starting next year.
Authorities can currently only effectively track transactions on five major Korean won local payment platforms. Therefore, tax discrepancies are likely to accelerate capital outflows.
The "Ghost Coin" scandal
Worse still, cryptocurrency giant Bithumb has recently been embroiled in a major scandal.
In February of this year, a simple (but extremely costly) typo in Bithumb's promotional reward system caused the exchange to mistakenly distribute 620,000 bitcoins (worth approximately 6 trillion Korean won at the time). Users were originally supposed to receive a reward of 620,000 Korean won.
Before Bithumb could implement a rollback, users quickly sold approximately 1,788 incorrectly allocated bitcoins.
The order book was flooded with "ghost coins," causing the prices of local mainstream cryptocurrencies to plummet temporarily. Bithumb's actual Bitcoin reserves amounted to only 46,000 coins.
Bithumb recovered 99.7% of the funds but has also filed a lawsuit against users to recover the remaining 7 bitcoins.
Due to this incident, BOKurged local exchanges to adopt automatic circuit breakers to help defend against abnormal spikes in trading volume in traditional markets.