# Political Turmoil’s Impact on South Korea’s Blockchain and Digital Asset Markets

## Market Shock: Bitcoin Plummets Amid Martial Law Declaration

The recent martial law declaration in South Korea sent shockwaves through the local digital asset market, resulting in a massive sell-off on domestic exchanges. Bitcoin prices plummeted to $62,300, with approximately $33.3 billion worth of assets sold off, temporarily marking the highest trading volume globally.

## Investor Exodus: A Shift to Foreign Exchanges

The instability in prices, coupled with system crashes at domestic exchanges such as Upbit and Bithumb, is expected to accelerate the migration of South Korean investors to foreign exchanges and decentralized finance (DeFi) platforms. The outages and the phenomena of the reverse kimchi premium have further deterred local investors, pushing them towards more stable international alternatives.

## Industry Contraction: Political Uncertainty Spurs Overseas Relocation

Political instability is likely to expedite the relocation of South Korean blockchain projects overseas, delaying key legislative processes such as the Virtual Asset User Protection Act. Major players like Nexon’s blockchain arm Nexplax have already moved to Abu Dhabi, while Klaytn and Line’s Pinch Foundation have relocated to Singapore, and Wemix by Wemade has shifted to Dubai. These moves reflect a strategy to escape South Korea’s uncertain regulatory environment in favor of blockchain-friendly jurisdictions.

## Market Confidence Erodes: Rising Demand for Digital Assets

The martial law situation has significantly undermined confidence in won-based assets, heightening the risk of foreign capital flight and exacerbating instability in the securities and bond markets. Consequently, investors are increasingly turning to decentralized digital assets. In times of geopolitical risk, assets like Bitcoin, perceived as more insulated from national crises, gain traction. Historical precedents include digital assets serving as safe havens during the Hong Kong protests and the Russia-Ukraine conflict.

## Double-Edged Sword of Stringent Regulations

South Korea’s digital asset exchanges, known for their strict adherence to Travel Rule and Know Your Customer (KYC) regulations, boast robust security and significant progress in money laundering prevention and investor protection since the implementation of the Specific Financial Information Act. However, this crisis highlighted the downside of these stringent regulations, which have widened the price disparity with global markets and made rational investment decisions challenging. The overnight crash and system instability on domestic exchanges have starkly showcased their limitations, potentially driving more investors toward stable international exchanges like Binance and Coinbase, which offer a range of financial products.

## Accelerated Blockchain Expatriation

Political instability is expected to further negatively impact the investment environment for South Korean blockchain projects. With many projects already moving abroad, the current turmoil will likely speed up this process. South Korea is witnessing a significant talent drain, which could undermine its competitive edge in the blockchain sector. As web3 and blockchain technology rapidly advance, the loss of skilled personnel poses long-term risks to the country’s technological competitiveness. Additionally, ongoing legislative discussions, including the Virtual Asset User Protection Act, may face delays due to the political crisis, further hindering the institutionalization of South Korea’s digital asset market.

## Conclusion

The political instability triggered by the recent martial law declaration has starkly exposed the structural vulnerabilities of South Korea’s digital asset market. The $33.3 billion surge in trading volume, system failures at major exchanges, and extreme price volatility compared to global markets underscore the political risks inherent in this sector. While market instability is expected to persist in the short term, addressing regulatory and systemic shortcomings could strengthen the stability and global integration of South Korea’s digital asset ecosystem in the long run, marking a crucial turning point for future developments.

*This article is based on an opinion piece by Tiger Research, providing an analysis devoid of political perspectives and focusing purely on the impact and short-term outlook of South Korea’s blockchain and digital asset market.*

*The detailed report titled ‘2024 Asia National Currency Stablecoin Trends’ by Tiger Research, a global web3 research institute partnered with Block Media, is available on the official Tiger Research website.*