Military Lockdown Shakes Up South Korean Crypto Market: $33 Billion Sell-Off Wave and Native Project Exoduses

By: blockbeats|2024/12/05 18:00:01

BTC

Original Article Title: Martial law in South Korea and the crypto market outlook

Original Source: Tiger Research Reports

Original Translation: Deep Tide TechFlow

**Military Lockdown Shakes Up South Korean Crypto Market: 3 Billion Sell-Off Wave and Native Project Exoduses**

Key Points Summary:

· Market Volatility: The announcement of martial law triggered a massive sell-off on South Korean cryptocurrency exchanges, with a total sell-off amounting to around 33.3 billion USD. The price of Bitcoin dropped to 62,300 USD, with the local market recording the highest trading volume globally at one point.

· Investor Exodus: Due to price fluctuations and system failures in local exchanges, South Korean investors are expected to pivot to overseas exchanges and DeFi platforms.

· Industry Contraction: Political instability is prompting South Korean blockchain projects to move overseas. Key legislation, such as the Virtual Asset User Protection Law, may be delayed as a result.

1. Introduction

Source: Yonhap News

Last night, President Yoon Suk-yet suddenly announced and lifted martial law, causing a shock to South Korea's cryptocurrency market. Bitcoin's price on South Korea's largest exchange Upbit dropped to 62.3K USD. Upbit and Bithumb, the two major South Korean exchanges, saw 24-hour trading volumes of 26.9 billion USD and 6.4 billion USD, respectively, reaching their highest levels this year. This reflects the large-scale sell-off by South Korean investors following the declaration of martial law. During this period, South Korean exchanges briefly became the highest-volume market globally, highlighting the extreme volatility of its market.

2. Decline in Trust in the Won Assets and Rise in Cryptocurrency Demand

The martial law event severely eroded trust in won-denominated assets. With foreign capital exiting, the stock and bond markets may become even more volatile. As a result, investors are gradually shifting their focus to decentralized assets such as cryptocurrency.

Against the backdrop of rising geopolitical risks, investors are turning to cryptocurrency to protect their assets. Major cryptocurrencies like Bitcoin are garnering attention for being beyond government control. In past crises such as the Hong Kong protests and the Russia-Ukraine conflict, cryptocurrency has been seen as a safe-haven asset.

-- Price

3. The Double-Edged Sword of Stringent Regulation and the Acceleration of Exchange Exodus

South Korean cryptocurrency exchanges maintain high security through strict travel rules and KYC regulations. The enactment of designated financial transaction information reporting and usage laws has strengthened anti-money laundering (AML) measures and enhanced investor protection. These efforts have positioned South Korea as a leader in regulatory compliance.

Source: Upbit

However, the market crash revealed the double-edged sword effect of stringent regulation. The strict rules have sustained a Kimchi Premium, widened the price gap with global markets, and made it difficult for investors to make rational decisions.

The significant price fluctuations and system instability of local exchanges have eroded investor trust. With overnight trading volumes reaching $33.3 billion, servers of Upbit and Bithumb experienced crashes. Unlike overseas exchanges, this instability has made local exchanges appear unreliable.

These issues are expected to accelerate South Korean investors' shift to overseas exchanges and DeFi platforms. Binance and Coinbase provide a stable trading environment and diverse financial products, making them the preferred choice for South Korean investors.

4. Acceleration of South Korean Blockchain Project Exodus

Due to political instability, the investment environment for South Korean blockchain projects has been affected. Many large projects have already moved overseas, and this trend is expected to continue. Nexon's blockchain division Nexpace has relocated to Abu Dhabi, Klaytn and LINE Finschia's Kaia Foundation have moved to Singapore, and Wemade's Wemix has shifted to Dubai. These companies have chosen blockchain-friendly countries to avoid South Korea's regulatory uncertainty and political risk. More projects are expected to move to Singapore and the UAE, where regulations remain clear and stable.

The overseas migration of blockchain startups has raised concerns about talent drain. This trend could weaken South Korea's competitiveness in the blockchain field. Against the backdrop of rapid development in Web3 and blockchain technology, talent outflow may have a long-term negative impact on South Korea's technological advantage. This brain drain has intensified the industry's sense of crisis.

Furthermore, the impeachment issue may delay the progress of key legislation. Laws such as the Virtual Asset User Protection Act currently being discussed in the National Assembly may face delays. These delays could further hinder the institutionalization process of South Korea's cryptocurrency market.

5. Conclusion

The martial law incident exposed structural weaknesses in the South Korean cryptocurrency market. Overnight, $333 billion in value vanished from sight, with major exchanges’ servers crippled. The market experienced extreme price volatility, with significant price discrepancies compared to global exchanges. These events underscored political risks in the market and the fragility of the current trading system under pressure.

In the short term, market instability is expected to persist. However, with appropriate institutional improvements and system enhancements, this crisis could also serve as a turning point. These efforts will help strengthen the stability of the South Korean cryptocurrency ecosystem and drive its globalization. The future trajectory is worth close monitoring.

Original Article Link

On June 9, The Kobeissi Letter, citing Goldman Sachs data, reported that global investors are selling South Korean stocks at an unusually rapid pace. In the latest trading session, foreign investors sold about $801 million worth of Kospi constituent stocks again; total foreign outflows last week reached about $10 billion, and the market has been in net foreign selling on nearly every trading day over the past month. According to the data cited in the report, foreign investors have sold about $75 billion worth of South Korean stocks so far this year. Meanwhile, South Korean retail and institutional investors together recorded roughly $69 billion in net buying over the same period, suggesting that the market’s main buying support has come from domestic capital rather than returning overseas funds. The information currently disclosed still mainly comes from The Kobeissi Letter’s retelling and Goldman Sachs data summaries, while public details on the statistical period and the specific definition of “selling” remain relatively limited.

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