South Korea Crypto Exchanges See Sharp Decline in Net Asset Inflows Ahead of Taxation

South Korea's largest cryptocurrency exchanges have seen a significant decline in net asset inflows ahead of January's virtual-asset taxation, which is set to start in just three months. According to an analysis by People Power Party lawmaker Park Soo-young, the five largest exchanges - Upbit, Bithumb, Coinone, Korbit, and Gopax - saw a 56.8% drop in net asset inflows between January and August this year compared to the same period last year.

The decline in inflows is mirrored by a sharp decrease in won deposits at domestic exchanges, which fell by 32.3% over the same period. In contrast, net outflows to overseas exchanges increased by 74.2%, with Korbit and Gopax seeing a significant increase in funds moving abroad.

The planned taxation of virtual assets has been cited as a major factor driving these changes, with concerns growing that investment money may move overseas in anticipation of the tax. The government plans to press ahead with the tax next year, applying a 22% rate to annual crypto income above a basic deduction of 2.5 million won ($1,810).

The ruling People Power Party and opposition Democratic Party both have differing views on the taxation of virtual assets, with some calling for a delay or overhaul of the current framework. Choi Su-jin, the People Power Party's senior floor spokesperson, argued that implementing the tax under current conditions would create market confusion and ultimately shrink the market.