South Korea's Financial Services Commission published its second-half 2025 report this week, and the headline figure is difficult to dismiss: 90 trillion won, roughly $60 billion, in crypto assets left domestic exchanges for overseas platforms and private wallets between July and December 2025. That is a 14% increase from the 78.9 trillion won ($52.5 billion) that moved offshore in the first half of the year.
For the full year, South Korean crypto holders transferred approximately $110 billion out of the country's regulated exchange ecosystem. The domestic industry, meanwhile, watched its profits collapse.
Profits Halved While Users Kept Signing Up
The paradox in the data is striking. South Korea's crypto exchange user base grew. The number of accounts at the country's 18 operating exchanges reached 11.1 million by year-end, up 3% from mid-2025. Deposits climbed 31% to 8.1 trillion won ($5.4 billion).
But the money was not staying. The overall market value of crypto held on domestic exchanges fell 8% to 87.2 trillion won ($58 billion). Average daily trading volume dropped 15% to 5.4 trillion won ($3.6 billion). Operating profit across all 18 exchanges came in at 380.7 billion won ($253.4 million) for the second half, down 38% from 617.8 billion won ($411.2 million) in H1.
More users. More deposits. Less trading. Less profit. The gap between those trends tells the story: Korean traders are using domestic exchanges as on-ramps, then routing capital elsewhere.
Where the Money Went
The Financial Services Commission attributed the outflows primarily to arbitrage activity. South Korea's crypto market has long traded at a premium to global prices, a phenomenon known as the "kimchi premium." When the gap widens, traders buy on international exchanges and sell domestically, or simply move assets offshore where spreads are tighter and token selection is broader.
But arbitrage alone does not explain $110 billion in annual outflows. Korean exchanges list far fewer tokens than global platforms. Binance lists thousands of trading pairs. Bybit and KuCoin offer access to new launches within days. Korean exchanges, under pressure from regulators, are conservative in listing decisions. Traders who want exposure to emerging tokens have no domestic option.
The regulatory environment compounds this. Korean authorities penalized several major exchanges during 2025, including Korbit, Upbit, and Bithumb, over AML and KYC compliance failures. The Financial Intelligence Unit (FIU) signed a new cooperation agreement with nine major credit card companies to track and block card-based payments tied to illegal overseas crypto-related foreign exchange schemes and cross-border fund outflows.
The intent is consumer protection. The effect, so far, is acceleration of capital flight.
The Tax Question Looming Over 2027
A proposed 22% combined tax on crypto gains exceeding 2.5 million won (approximately $1,665) is scheduled for 2027. The People Power Party has introduced legislation to abolish it entirely, arguing it amounts to double taxation given that digital assets are already classified as commodities. The opposition calls it unenforceable and unfair.
The tax debate is not academic for capital flows. If the 22% levy takes effect, it would create an even stronger incentive for Korean holders to move assets into self-custody wallets or offshore exchanges that do not report to Korean authorities. The threshold is remarkably low: gains above roughly $1,665 would trigger the tax, catching a wide swath of retail participants.
If the tax is repealed, some analysts expect a partial reversal of outflows as the regulatory friction that pushed capital abroad eases. But the structural issues, limited token selection, conservative listing policies, and aggressive AML enforcement, would remain.
A Custody Scandal Made Things Worse
The credibility of Korean crypto oversight took a hit in February 2026 when the National Tax Service accidentally published unredacted photos of a seized Ledger hardware wallet, including its full seed phrase, in an official press release. Within days, 4 million PRTG tokens worth $4.8 million were stolen using the exposed credentials. A prior incident involving nearly $4.05 million in similar leaked security codes had already raised questions about the government's ability to safely handle seized digital assets.
The NTS responded by announcing plans to outsource crypto custody to external specialist firms in H1 2026 and established a Task Force for Advanced Virtual Asset Management on March 11 to centralize crypto operations under one division. But the damage to institutional trust was done. For Korean crypto holders weighing whether to keep assets on a domestic exchange subject to government seizure protocols that leak seed phrases, self-custody options started looking less like an ideological preference and more like a practical necessity.
What This Means for the Korean Crypto Market
South Korea remains one of the largest crypto markets in the world by trading volume per capita. The 11.1 million exchange accounts represent roughly 21% of the country's total population. But the domestic exchange industry is being hollowed out. More users are signing up, but the assets are leaving.
The pattern mirrors what happened in India after its 1% TDS (Tax Deducted at Source) on crypto transactions took effect in 2022: domestic volume cratered while activity migrated to offshore platforms. India's share of global crypto trading fell from roughly 10% to under 3% within a year.
South Korea is on a similar trajectory. The question is whether regulators will interpret the $60 billion outflow as evidence that rules need tightening, or as a signal that overly restrictive policies are self-defeating.
The credit card tracking agreements with nine banks suggest the former interpretation is winning. For now, the money keeps moving.
Overview
South Korea saw $60 billion in crypto assets flow to overseas exchanges and private wallets in the second half of 2025, a 14% increase from H1. Full-year outflows hit $110 billion. Despite a 3% rise in exchange accounts and 31% growth in deposits, domestic exchange profits fell 38% as daily trading volume dropped 15%. The outflows are driven by limited domestic token selection, aggressive regulatory enforcement, a proposed 22% crypto gains tax for 2027, and a custody scandal that saw a government agency leak a seized wallet's seed phrase. Korean regulators are now partnering with credit card companies to track offshore flows, but the measures risk pushing more capital out of the domestic system rather than keeping it in.
