Few issues have divided the financial world – and South Korean society – like last year’s partial crackdown on cryptocurrencies and exchanges. The government’s decision to act against an “overheated” bitcoin and altcoin market that had seen everyone from schoolchildren to pensioners invest their life savings in crypto, sent global prices tumbling, bracing the nation for a full, China-style clampdown.

Almost half a year on, that clampdown has still not arrived – and most probably never will. But before the government decided to put the brakes on its tough, anti-crypto drive, it issued a range of bans that continue to sting local crypto ventures hard. And chief among these was the countrywide ban on initial coin offerings (ICOs).

Only the most blinkered of crypto evangelists would argue that the government did not have cause to act when it did. Back in 2017, fake Korean ICO stings were springing up left, right and center as the country’s thirst for newer altcoins became almost insatiable.

By September 2017, the government had seen enough. It allowed the Financial Services Commission, the country’s financial regulator, to issue a total ban on all forms of ICO issuance. Worried crypto enthusiasts feared the absolute worst – after all, China’s absolute crypto crackdown also began with a similar ban on ICOs.

Why Might It Be Unsustainable?

While it is not unconceivable that the government will never go back on its decision, much has changed since September last year. The “overheated” market, which was attracting investments from all-comers has taken several nosedives, scaring off newbie investors and instilling a new cautious approach among previously gung-ho, or enthusiastic, Korean investors.

A ban on trading for youths and foreign passport holders followed, as well as regulations requiring investors to use real-name, social security number-verified bank accounts for withdrawals, talk of capital gains taxes of up to 22% and speculation of a total ban on trading – all of which has helped the markets cool off a little.

But the regulations sparked outrage – the first major backlash against Moon Jae-in’s government since the hugely popular president swept to power in a landslide win last year. Stunned, the government, which thought it was acting against crypto with the public’s blessing, gently eased off.

Tentatively, crypto ventures are now testing the waters again, with the country’s exchanges now seemingly reneging on their self-imposed regulation promises made in December last year.

Back in December, exchanges vowed to ease off with their marketing and advertising campaigns so as not to drag in too many casual, uninformed investors. Just three months later, they are all in marketing overdrive again. And those hoping to issue ICOs are eyeing developments at the exchanges, wondering if they too could not similarly test the government’s resolve somehow.

Why Might the Government Change Its Mind?

The simple answer to the above is: the bottom line. South Korean companies might not be able to issue ICOs in Seoul and Busan, but there is nothing to stop them doing so in Singapore, Hong Kong or elsewhere in the world.

And with so many of the country’s tech giants now looking to issue ICOs, that represents a whole lot of money flowing out of the country, something which Seoul has sought to avoid since the 1970s – when the country’s IT economy was born.

South Korean IT policy has always seen the government back tech companies to the hilt, encouraging them to focus first and foremost on domestic markets and local channels. IT represents 33% of the country’s export economy (and Korea’s export economy is the world’s seventh biggest), and fintech is seen as a powerful growth engine by all parties, not least the current government. Forcing local business to take their trade overseas goes against the grain for Seoul.

The Role of Big Businesses and SMBs

LINE, Kakao, Naver and Netmarble are just a few of the South Korean companies who are set to launch their ICOs through their overseas subsidiaries – with more surely set to follow. Even mega-rich Hyundai co-released an ICO last year, prior to the ban, through its Hyundai Pay subsidy, in conjunction with two local blockchain startups.

Should any of Hyundai’s fellow chaebols, traditional industrial giants like Samsung, SK and LG, one day desire to issue an ICO, one would have to assume the pressure on the government would simply be too much to take.

But it is not just the big companies that the government needs to be wary of. It is the smaller startups that are having to relocate their offices to ICO-friendly territories to ensure their tokens get released that may force the government to act.

Take, for example, the case of ENT Cash, a company that issues K-pop star-themed coins – now operating in Australia because of the ICO ban. Or the fast-growing P2P lending platform Korea Funding, poised to launch its ICO in Hong Kong in May. The ICO ban has been Hong Kong and Singapore’s gain. Great Korean business ideas, blossoming overseas. This, for many in the country, just does not sit right.

Winds of Change?

Sources within the government have already told the media (on more than one occasion in recent weeks) that regulators, tax agencies and justice officials are considering re-legalizing ICOs should “certain conditions be met.”

Moreover, South Korean president Moon Jae-in’s popularity ratings have surged in the wake of his government’s decision to put the brakes on a proposed crypto-crackdown.

Mira Kim, an ICO and blockchain consultant for companies in the South Korean city of Ulsan, told Cryptonews.com, “When you see companies of all sizes setting up subsidies abroad with the sole purpose of issuing ICOs, it makes you wonder what might have been had the government never issued the ban. If the government can come up with a way to sort the wheat from the chaff when it comes to ICOs, I fully expect the ban to be reversed before the year is out. Big IT businesses are just not used to being shackled like this.”

While a return to the wild old days of pre-crackdown Korea seem very unlikely, the idea that ICOs will not make a comeback in some shape or form seems very far-fetched indeed. In the long-term, there is just too much at stake for the government to see it any other way.

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This column does not necessarily reflect the opinion of Cryptonews.com.