South Korean Central Bank Excludes Bitcoin from Foreign Exchange Reserves

Policy Background and Core Position

On March 17, 2025, the South Korean Central Bank officially responded to parliamentary inquiries, clearly stating that “there has never been any consideration to include Bitcoin in its foreign exchange reserves,” and emphasizing that this issue must be approached with an “extremely cautious attitude.” This stance is a continuation of the South Korean government’s regulatory approach toward cryptocurrencies in recent years, based on the risks of price volatility and conflicts with international compliance standards.

The Central Bank pointed out that Bitcoin’s extreme price fluctuations (for example, a 38% drop in one month in May 2021) could cause a dramatic devaluation of foreign exchange reserves, and it would be difficult to liquidate quickly during market crises. In addition, the International Monetary Fund’s (IMF) foreign exchange reserve standards require assets to be liquid, convertible, and credit-rated, and Bitcoin, lacking sovereign credit backing and stable market depth, fails to meet these conditions. This position is consistent with that of the European Central Bank and the Japanese government but contrasts with the more open attitudes of emerging markets such as the Czech Republic and Brazil.

Market Impact and Investor Strategies

The statement by the South Korean Central Bank has caused a short-term sentiment shock in the crypto market. Following the announcement, Bitcoin’s price fell by 3.5% within 24 hours, and the trading volume of the BTC/KRW pair on the domestic exchange UPbit dropped by 42%. In the long term, this policy may accelerate the structural divergence in the South Korean crypto market:

1. Institutional Capital Shifts to Compliant Assets: Traditional institutional investors, such as pension funds and insurance companies in South Korea, may further avoid Bitcoin and instead allocate funds to gold or dollar assets.
2. Increased Retail Trading Risks: Smaller exchanges lacking regulatory protection may face liquidity pressures, potentially exacerbating market manipulation.
3. Increased Activity in the Derivatives Market: Investors may hedge against price volatility through instruments like futures and options.
   Retail investors should pay attention to the transmission effects of South Korean policy in the Asia-Pacific market. For example, regulatory authorities in Japan, Singapore, and other countries may emulate the South Korean stance by strengthening their scrutiny of crypto assets. Investors can mitigate operational risks arising from policy uncertainty through prudent asset allocation.

International Geopolitics and Regulatory Trends

The decision by the South Korean Central Bank reflects two major global regulatory conflicts regarding cryptocurrencies:

1. Conflict between Sovereign Currencies and Decentralized Assets: Bitcoin’s “super-sovereign” nature challenges traditional foreign exchange management systems, with central banks worldwide fearing it may undermine the effectiveness of monetary policy.
2. Balancing Innovation Incentives with Financial Stability: Although countries such as the United States and the United Arab Emirates are actively promoting crypto asset compliance (e.g., the Trump administration’s “Strategic Bitcoin Reserve Plan”), most countries continue to prioritize risk prevention.
   Notably, South Korea’s policy is highly aligned with the IMF’s stance. In its 2024 Global Financial Stability Report, the IMF clearly advised member countries to avoid including cryptocurrencies in their forex reserves and instead explore central bank digital currencies (CBDCs) or other controllable innovations. This “top-down” regulatory framework may become mainstream in the future, further limiting the official use cases of Bitcoin.

Industry Implications and Future Outlook

The South Korean Central Bank’s statement reveals deep-seated obstacles to integrating crypto assets into the traditional financial system:

• Lack of Value Anchoring: Bitcoin lacks a tangible asset value or sovereign credit backing like gold, with its price highly dependent on market sentiment and liquidity.
• Regulatory Coordination Challenges: Diverging policies across countries expand the opportunities for cross-border and regulatory arbitrage; for instance, South Korean investors may bypass domestic restrictions through offshore exchanges.

Looking ahead, breakthroughs in the crypto market may lie in innovative compliant financial instruments. For example, Bitcoin spot ETFs, compliant stablecoins, and RWA (Real World Asset tokenization) products could serve as bridges between traditional capital and the crypto ecosystem. Investors can monitor liquidity changes and policy adaptation progress for such products via platforms like JuCoin.

The South Korean Central Bank’s decision is not merely a policy statement; it is a microcosm of the global crypto regulatory contest. In an environment where risks and opportunities coexist, investors must adopt a dynamic perspective when assessing policy evolution and build countercyclical investment portfolios on compliant platforms.