South Korean lawmaker Kim Byung-wook said he believes the crypto industry is unique and different from traditional finance, and thus requires a separate regulatory framework.

That isn’t a new refrain for Kim, who has repeatedly advocated for crypto-specific legislation. The government’s current method of regulating Korea’s cryptocurrency industry is by applying anti-money laundering (AML) laws and know-your-customer (KYC) protocols to crypto exchanges.

Crypto is in a gray area. Exchanges will be monitored by the country’s financial regulator, the Financial Services Commission (FSC), but the government doesn’t recognize bitcoin and other cryptocurrencies as financial assets. The government will begin collecting taxes on crypto profits starting Jan. 1, but because crypto isn’t recognized as a financial asset, it will be taxed as income. All annual profits from crypto trading exceeding 2.5 million won ($2,252) will be taxed as “other income” at a rate of 20%. 

Korea’s capital gains tax is also 20%. but it currently applies only to annual capital gains of 1 billion won ($900,596) or more. The Finance Ministry is planning on lowering the limit to 50 million won ($45,045) starting 2023.  

The U.S., the U.K. and France view profits from crypto trading as capital gains, while Japan has adopted a similar stance to South Korea’s. The tax on short-term capital gains in the U.S. goes up to 37%, while the long-term rate is about 20%. President Biden has said he may propose raising the rate to over 40%.  

Kim told CoinDesk Korea he agreed that crypto should be taxed, but he argued that establishing a legislative and regulatory framework should be the priority. He said it’s “problematic” for the government to view crypto as taxable without providing any legal protection for traders.  

“Taxing any sort of financial profit is a given, but we need to first establish a legal and administrative framework that applies specifically to crypto and virtual assets,” Kim said. 

South Korea Finance Minister Hong Nam-ki said during a press conference on April 27 that “the FSC’s position is that cryptocurrency isn’t really a financial asset,” and he noted that taxing crypto as income is “inevitable.” 

On April 22, Eun Sung-soo, head of the FSC, said that the government isn’t responsible for protecting crypto traders from scams or fraud, because crypto trading is “inherently speculative.” Eun compared investing in crypto to gambling. He also suggested any exchanges that don’t register with financial authorities would be shut down. 

Regarding the FSC head’s comments about exchanges being shut down, Kim said, “Authorities currently don’t even know how many exchanges there are in the country, how coins are listed and what kind of protections they offer to traders.” 

“One of the reasons the crypto market is so overheated is because there is no regulatory framework,” he added.  

Kim also pointed to the lack of any standardized procedure for listing coins and preventing fraudulent initial coin offerings in South Korea, citing the GoMoney2 and Arowana incidents as examples. 

On March 17, the issuer of the GoMoney2 (GOM2) token announced that the project had secured an investment of 5 trillion won (around $4.5 billion) from the wallet service Celsius, but Celsius posted a tweet on March 18 that it had made no investment in GoMoney2. Upbit, one of Korea’s largest exchanges, delisted the GOM2 token the next day. 

On April 20, the Arowana (ARW) token was listed on another major exchange, Bithumb. The price of Arowana rose over 100,000% within 30 minutes after being listed. 

Many observers have suspected market manipulation by insiders within Hancom. HancomWITH, a subsidiary of Korean software firm Hancom, invested in the Arowana network through its Singapore branch on April 13, inspiring many Koreans to nickname Arowana the “Hancom coin.” Both Hancom and Bithumb have denied any knowledge of market manipulation. 

At the time of writing, there has been no official investigation into the Arowana project. As of April 30 around 15:00 UTC, it is trading at about 15,670 won (about $14). On the day it was listed, the price went as high as 53,800 won ($48).   

Kim has been working with CoinDesk Korea and legal experts since last July to formulate a blueprint for basic crypto regulation and push for crypto-specific legislation.  

“We need virtual asset legislation that will allow Korea’s blockchain industry to prosper while protecting traders from fraud,” Kim said. “Otherwise we will fall behind in a burgeoning global industry.”