This move would enable digital asset companies to access tax breaks and national funding.
Dunamu paid 24 billion won in taxes after losing its venture capital status in 2018.
The policy is part of President Lee's support for the cryptocurrency economic strategy.
South Korea is officially recognizing crypto firms as venture capital companies, a decision that could grant the industry its first access to tax breaks, government-backed loans, and startup funding.
The Ministry of SMEs and Startups has proposed a measure to reclassify virtual asset companies, removing them from the list of restricted industries, which includes gambling and nightlife.
If passed, the policy would reverse a long-standing regulation that prevents crypto startups from entering the country's thriving venture capital ecosystem.
This legislative push comes after years of regulatory exclusion, with a major flashpoint occurring in 2018 when Dunamu, the parent company of the cryptocurrency exchange Upbit, lost its venture capital status and was forced to pay 24 billion won ($18 million) in taxes.
Dunamu challenged this decision in court but lost, highlighting the financial consequences of South Korea's previous stance.
The ministry now states that it hopes to recognize the innovative and entrepreneurial qualities of crypto companies, aligning them with other emerging technology sectors.
The new law aligns with Seoul's broader support for cryptocurrency.
The proposal marks a significant departure from previous policies. Until now, crypto-related businesses have been classified as industries prohibited from receiving government support.
The proposed amendment would remove virtual asset companies from this restricted category, allowing new and existing startups to register as venture firms without risking certification.
The ministry believes the new framework will expand South Korea's venture capital ecosystem and stimulate growth in the blockchain and cryptocurrency industries.
Public feedback on the draft law is being collected until August 18, 2025, marking the start of the formal legislative process.
If passed, it would allow crypto companies to access the same support tools currently available to other recognized startups, such as tax reductions, subsidies, and loan guarantees.
This change could also benefit companies that already have venture capital status and wish to expand into cryptocurrency, as they may risk losing their title if they add digital asset businesses to their models.
President Lee's cryptocurrency policy is beginning to take shape.
The risk company proposal is one of several initiatives from President Lee Jae-myung's new government. Since taking office last month, Lee has prioritized digital assets as the cornerstone of his economic strategy.
His government is supporting the approval of spot bitcoin exchange-traded funds (ETFs), exploring yen-based stablecoins, and reviewing the ongoing ban on cryptocurrency institutional trading.
Major banks in South Korea have already responded. Some companies have applied for trademarks for stablecoin products, while others are working on blockchain infrastructure and digital wallet services.
Industry legitimacy and investment may follow.
The proposed legal amendments could have widespread impacts beyond tax benefits.
Treating cryptocurrency companies as venture capital firms could enhance the credibility of an industry that has long operated on the fringes of formal finance in South Korea.
Greater legitimacy can attract institutional investors, encourage the formation of new enterprises, and reduce compliance-related friction.
It may also align South Korea with other markets advancing similar policies, such as the EU's MiCA framework and Japan's reforms allowing limited cryptocurrency fundraising.
As venture capital-backed crypto projects may gain access to bank loans and innovation grants, the ecosystem could accelerate development and establish a foothold in South Korea's broader tech economy.
Public submissions regarding the proposal are currently open, with a final decision expected later this year.