South Korean cryptocurrency markets have seen significant turmoil following President Yoon Suk-yeol’s unexpected declaration of martial law, leading to a marked divergence between global and local cryptocurrency prices.

Bitcoin dropped to a record low of $79,000, and XRP was trading at $1.89 on Upbit for over an hour. This prompted users to rush to exchanges to place buy orders and buy these tokens at an unprecedented low price in a bull market.

Brief chaos in South Korea's crypto market

The political crisis began when President Yoon declared martial law on Tuesday night, prompting troops to try to enter parliament. Yoon justified the move as necessary to combat "anti-state forces supporting North Korea."

The announcement threw the country’s economy into temporary chaos. The South Korean won surged against the US dollar, meaning a crypto arbitrage opportunity opened up for USDT holders. Bitcoin fell more than 30% on South Korean exchanges, including Upbit, during overnight trading on Tuesday while it fell just 2% on global markets.

The clear difference between the two reflected both panic selling by local traders and a nearly 3% rise in the USD/KRW exchange rate.

According to Lookonchain data, over $163 million flowed into Upbit alone, with many whales placing large USDT orders. However, lawmakers, including the leader of his own party, Han Dong-hoon, quickly defied martial law to restore order to the economy.

Parliamentary opposition proved effective, with lawmakers voting to reject the declaration of martial law early Wednesday morning. Markets stabilized after the parliament’s intervention, with Bitcoin recovering to $95,167 by 17:30 UTC on Wednesday after briefly topping $96,000.

Prediction Markets Interaction

Political uncertainty has seeped into cryptocurrency prediction markets, with Polymarket launching a betting pool on the likelihood of President Yoon’s resignation. The market is asking whether Yoon will leave office between December 2 and 31, 2024. As of 17:30 UTC on Wednesday, around $257,000 in bets have been placed, with Yoon’s resignation being assigned a 61% chance.

The episode highlights the growing interconnectedness between political stability and crypto markets, especially in regions with high crypto reliance, such as South Korea.

South Korea’s cryptocurrency market has seen increased activity from local users this year despite regulatory challenges. As BeInCrypto reported in October, the country saw a record 67% increase in daily trading volume, reaching 6 trillion won.

Cryptocurrency exchanges, especially Upbit, have consistently faced regulatory hurdles. In November, financial regulators flagged 600,000 potential KYC violations on the exchange. These violations have put Upbit’s license renewal at risk despite the exchange’s commitment to transparency.

Regulators have also launched an investigation into Upbit’s potential monopoly over the South Korean cryptocurrency market. The exchange is also alleged to be linked to pump-and-dump schemes, exploiting regulatory loopholes and attracting scrutiny.

At the same time, nearly 35% of cryptocurrencies were delisted on various South Korean exchanges, half of which lasted less than two years. These delistings resulted in significant losses for investors due to reduced liquidity and falling prices on the delisted coins.