South Korea's cryptocurrency sector is under intense regulatory scrutiny from two separate fronts, raising concerns about political influence and market integrity. The Seoul Metropolitan Police Agency's Public Crime Investigation Division has questioned former Dunamu CEO Lee Sir-goo as a witness in a widening probe into alleged political nepotism involving independent lawmaker Kim Byung-kee.
The political investigation centers on a November 2024 dinner meeting where lawmaker Kim, who serves on the National Assembly's Science, ICT, Broadcasting and Communications Committee, allegedly solicited employment opportunities for his second son from cryptocurrency exchange executives. The questioning of Lee Sir-goo, who led Dunamu (operator of Upbit, South Korea's largest exchange) through its major growth period, marks a crucial escalation. Police are examining whether Kim leveraged his political oversight position over technology sectors, including cryptocurrency, for personal family benefit.
Simultaneously, the Korea Fair Trade Commission (KFTC) launched an on-site probe on February 4 into Bithumb exchange over potentially misleading advertising claims. Investigators visited Bithumb's Gangnam-gu headquarters to obtain documents after the exchange advertised having "the highest liquidity among domestic virtual asset exchanges." The KFTC considers these claims deceptive given Upbit's dominant market position.
Market data reveals Upbit handled over $180.7 billion in trades during Q4 2025, accounting for 65% of the South Korean market, while Bithumb processed about $86.5 billion (31.1%). Together, these two exchanges control over 96% of domestic trading activity, creating an extremely concentrated market that has historically fueled pricing distortions like the "Kimchi Premium"—which reached almost 12% in early 2025 before declining due to tighter regulation and falling Bitcoin prices.
The regulatory pressure comes amid broader legislative uncertainty in South Korea. The Financial Services Commission (FSC) and Bank of Korea (BOK) are reportedly at odds over stablecoin supervision, contributing to the postponement of Korea's Digital Asset Basic Act until 2026. The Democratic Party has proposed the Virtual Asset Phase 2 Act, which would mandate stablecoin issuers maintain minimum capital of approximately 5 billion won ($3.46 million) and cap significant shareholder ownership in exchanges at 15-20%.
Industry experts warn that prolonged regulatory disagreements could delay legislation and potentially leave South Korea's financial markets behind global trends. Talks over a won-pegged stablecoin structure have stalled, with sharp divisions over whether banks should control majority shares of stablecoin issuers.
