The N Reasons Why Virtual Asset Promotion Policy is Needed Right Now [Hankyung Koala]

Kim Min-seung's ₿ficial

In Korea, the announcement of allowing corporate virtual asset trading has been made, and in the US, an executive order in March officially declared Bitcoin as a strategic asset. This has increased interest in virtual assets in both the National Assembly and the government. This is a positive change. However, discussions are still at a rudimentary level, focusing on "how to regulate and suppress virtual assets, which are nothing but scams." As global changes are rapidly progressing, a virtual asset promotion policy is urgently needed in Korea as well. It should be discussed, decided, and implemented swiftly. Let's look at the reasons.

Bitcoin

With the listing of Bitcoin ETFs on the US stock market and the start of handling by global financial companies, Bitcoin has been recognized as a 'financial asset' in a short time. This month, the US President declared Bitcoin as a strategic asset through an executive order, and now the only question is when and how to purchase it.

The moment the US government's purchase plan is announced, Bitcoin will undoubtedly have the same status as gold. BRICS countries are already using Bitcoin for resource trading, and last December, Fed Chair Powell and then-SEC Chairman Gary Gensler also acknowledged Bitcoin as digital gold.

Although the gold standard no longer exists, just as it is normal for governments to hold gold to stabilize their currency value, holding Bitcoin will also become the new normal. Currently, countries like the US, China, Ukraine, the UK, Bhutan, and El Salvador are exceptions in holding Bitcoin, but as Bitcoin becomes digital gold, holding Bitcoin will fall within the realm of fiduciary duty for countries and financial institutions.

If our government or financial institutions decide to purchase Bitcoin, institutional preparations must be in place to execute at that time. If discussions and legislative processes begin only then, the optimal purchase timing is likely to be missed.

Stablecoins

David Sacks, the White House's 'AI & Crypto Czar', said at a press conference in February:

"The US is now entering the 'golden age of digital assets'. Our goal is to establish US dominance in digital assets. Stablecoins play a key role in dollar hegemony and demand for US Treasuries. Stablecoins can drive trillions of dollars of economic activity related to US Treasuries and financial innovation within the US."

Stablecoins have already proven their durability through a time-tested period of over 10 years, and mass adoption is already occurring in countries with outdated financial infrastructure.

Stablecoins are like wizards solving the ever-growing US debt problem. Stablecoins partially solve the issue of reduced demand for US Treasuries due to the de-dollarization movement of BRICS countries. This is because most dollar stablecoins recently hold US Treasuries as reserves. The stablecoin bill being legislated in the US is even legalizing this. An increase in the issuance of dollar stablecoins means an increase in demand for US Treasuries.

Moreover, as a side effect, the use of the dollar is dramatically promoted worldwide. In countries with insufficient financial infrastructure or where the value of the national currency is lacking, the use of dollar stablecoins as a store of value or payment method, i.e., as a substitute for banks, is increasing. As the use of dollar stablecoins increases globally, the global economic population indirectly holds US Treasuries.

From the US government's perspective, stablecoins are excellent tools for solving national fiscal issues and maintaining currency hegemony. It may even establish a stronger dollar hegemony than the 'petrodollar' system created through agreements with Saudi Arabia. It is only natural for the US government to support dollar stablecoins, which enhance dollar accessibility to the extent of shaking the monetary sovereignty of some countries.

Is there a need for stablecoins in Korea?

Korea is a country with a very well-established financial infrastructure. Credit card issuance is easy, and online payments are very convenient. Therefore, the utility of stablecoins may not be well felt. But that is only from the perspective of financial consumers. From the perspective of merchants, stablecoins, which are settled immediately rather than credit or debit cards that take 1-2 business days for settlement, may be preferred. The cost is also much cheaper. This advantage applies equally to inter-company payment systems. Especially for cross-border remittances, this advantage is doubled.

Leaving aside the need for a won stablecoin, is there a need for a dollar stablecoin in Korea? This question is akin to asking if there is anyone in Korea who wants to own dollars. Dollar stablecoins are dollars that are easier to access, more liquid, and more convenient to hold and use. Furthermore, with the Trump administration's rapid shift in virtual asset regulation, the declaration of government-level support for stablecoins, and the US Office of the Comptroller of the Currency (OCC) allowing US banks to enter the virtual asset industry, Bank of America (BoA) and Standard Chartered Bank have expressed their intention to enter the stablecoin business. Global asset management firm Fidelity and the state of Wyoming have also announced plans to launch stablecoins, and World Liberty Financial (WLFI), operated by the Trump family, has launched its own stablecoin, USD1. As Tether (USDT) faces regulatory challenges in the US and Europe, many businesses are jumping in to capture the market.

Although it is still hypothetical, if they introduce a system like BlackRock's BUIDL that pays interest to secure market share, from the holder's perspective, it will become 'dollars that earn interest just by holding them.' It's not like a savings account with a maturity date, and it's dollars that can be exchanged for won at any time with interest. That interest could be higher than the interest rate on domestic commercial bank free savings accounts. Returning to the initial question, let's think again. Is there a need for convenient dollars with good accessibility and liquidity that earn interest just by holding them? I think there is a possibility that demand will flock to the extent of affecting the won-dollar exchange rate, similar to the 'Seohak Ant' phenomenon. If the dollar exchange rate rises, demand will increase, and there is a possibility of a vicious cycle where that demand has a greater impact on the exchange rate.

Virtual Asset Promotion Policy Must Start Now

The time when Bitcoin is established as 'gold' and dollar stablecoins are widely used globally is imminent. When the US federal government starts purchasing Bitcoin, its status and financial value will rise sharply, and the emerging global brand stablecoins will soon start competing for market share. In the digital age, mass adoption happens in an instant. If we face this 'new normal' era without preparing domestic alternatives or creating an industrial ecosystem, we will be driven into a situation where we cannot even respond. It is not an issue to be addressed with discussions focused on prohibition and blocking. One of the major reasons the US Democratic Party failed to recreate the regime is precisely that.

In December 2023, the Governor of the Bank of Korea said, "If stablecoins are issued by institutions with international networks like VISA or Mastercard, the volatility of cross-border capital movements will increase, and there may be negative impacts on monetary sovereignty." We need to think deeply again about whether this applies to us as well. There is not much time left to prepare.

Kim Min-seung, Head of Korbit Research Center...

He is a founding member and head of the Korbit Research Center. He works to easily explain complex events and concepts occurring in the blockchain and virtual asset ecosystem and to help people with different perspectives understand each other. He has experience in blockchain project strategic planning and software development.

▶This article is an external contributor column introduced to provide various perspectives to cryptocurrency investment newsletter subscribers and does not represent the position of the Korea Economic Daily.

Reporter Mi-hyun Cho mwise@hankyung.com