The South Korean National Assembly has approved the postponement of a planned 20% tax on cryptocurrency trading profits.
Originally scheduled to take effect on January 1, 2022, this tax (with an additional 2% local tax) has now been pushed back multiple times due to strong opposition from investors and the industry.
The implementation of the crypto tax has now been delayed until January 1, 2025, and may be postponed further until 2027.
Rationale Behind the Delay
The ruling People Power Party (PPP) argued that rapidly implementing a cryptocurrency tax is “not advisable,” citing concerns that investors may leave the market if the tax is imposed.
During the election period, the PPP promised to push the implementation of the tax to 2028, though the final compromise reached was a delay until 2025 or potentially 2027.
The opposition Democratic Party (KDP) had initially challenged the delay, accusing the PPP of using it as a political tactic, but ultimately the National Assembly approved the postponement.
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Cryptocurrency Trading Volumes in South Korea
Prior to the news of the tax delay, South Korea’s retail daily trading volume in the cryptocurrency market had reached an impressive $18 billion.Â
Leading the charge were tokens like Ripple’s XRP, which saw a trading volume of over $6.3 billion, followed by Dogecoin at $1.6 billion and Stellar at $1.3 billion.
Other notable performers included Ethereum Name Service (ENS) and Hedera (HBAR), with trading volumes of $900 million and $800 million, respectively.
These figures highlight the significant retail investor participation in the South Korean crypto market.
Concerns About Momentum-Driven Trading
Analysts have noted that the high trading volumes in South Korea are largely driven by retail traders, indicating a momentum-based trading pattern dominating the market.
This suggests that the introduction of a cryptocurrency tax could have a significant impact on investor behavior, potentially leading to market fluctuations and outflows, as the PPP had warned.
Broader Implications and Cryptocurrency Market Dynamics
The delay in implementing the cryptocurrency tax in South Korea is a notable development, as it provides temporary relief to investors in the country.
However, the ongoing debate and political wrangling around the tax policy highlight the complexities and challenges governments face in regulating the rapidly evolving cryptocurrency market.
As South Korea’s cryptocurrency trading volumes demonstrate, retail investors play a significant role in shaping market dynamics, and any policy changes can have far-reaching consequences for the broader crypto ecosystem.
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