A catastrophic period for cryptocurrency is not stopping South Korea’s second-largest city from betting that digital money will solve a major problem: having one of the greyest populations in one of the world’s fastest-ageing nations.

Busan, a port on the south-eastern coast of the Korean peninsula, is seeking to become a global cryptocurrency hub because its planners believe that embracing virtual tokens will bring more young people to its streets. It is setting up a publicly run exchange for digital assets, wooing blockchain firms and soliciting investments from venture capital companies.

Not even the spectacular collapse of Sam Bankman-Fried’s FTX crypto empire is making the plan’s architects change their minds. Their determination underscores the demographic challenges facing the country’s first major city to be designated as super-aged, where more than a fifth of the population is at least 65 years old.

Younger people prefer to work in areas such as crypto, finance and blockchain division head Park Kwang-hee at Busan’s metropolitan government said in an interview. “We thought it was right to focus on digital assets and financial products.”

It is far from uncommon to ascribe to crypto the ability to cure a host of ills. El Salvador adopted Bitcoin as legal tender in a bid to boost its economy. Crypto proponents argued that digital assets were a hedge against inflation and a way to promote financial inclusion, and blockchain technology has been touted as capable of revolutionising everything from the financial system to the travel industry.

But this may be the first time cryptocurrency has been held up as capable of altering the make-up of a population. For one expert in demographics, the attempt is meaningful but its chances of success are low.

“(This) alone will not be enough to solve the ageing issue,” said research fellow Choi Eun-ju at think-tank Sejong Institute. Living in Busan may not appeal to younger people partly because its education and other options are not as good as those of places like Seoul, she added.

South Korea is one of the world’s fastest-ageing nations among economies with per capita gross domestic product of at least US$30,000 (S$40,000), according to Bloomberg calculations. The problem is particularly acute in Busan, where people aged at least 65 rose to 21 per cent of the population as at September.

Busan has signed memorandums of understanding with some of the world’s largest cryptocurrency exchanges, including Binance Holdings, to work together to launch the crypto trading venue by the end of this year.

The plan to start a public bourse has echoes of the country’s main securities exchange, which is also based in Busan and was once publicly run. Eventually, the Busan exchange will be run by private companies, according to Mr Park.

This comes as customers pull their money from private venues after billions of dollars vanished at FTX. Busan is sticking to its plans even after the developments at FTX, Mr Park said. Crypto’s unregulated nature is precisely why a properly regulated public exchange is needed, the bureaucrat said.

He gave another example closer to home: the implosion of Luna and its sister token TerraUSD in May. The virtual currencies caused some US$60 billion in losses for investors and their South Korean creator Do Kwon is now a fugitive.

The exchange will eventually expand into so-called security tokens, digital assets that are classified as securities and regulated under South Korea’s capital markets law. The country plans to allow the issuance of such tokens this year, a reversal of sorts after initially banning all initial coin offerings in 2017.

Another part of Busan’s drive to become a global crypto hub is its efforts to woo blockchain companies. In 2019, the city was designated as a regulation-free zone for testing blockchain technologies and developing related businesses. The zone is currently backing six blockchain projects involving 17 companies. Busan is also seeking to attract blockchain firms outside the regulation-free zone. In December, 15 such companies moved into the 63-story Busan International Finance Centre, bringing the total to 29.

Earlier in October, a group of venture capital funds focused on blockchain technology pledged US$100 million in investments.

But getting more firms to establish their headquarters in a port city more than 300km from Seoul will not be easy, according to research fellow Koo Yun-mo at think-tank Busan Development Institute. Setting up the public crypto exchange quickly will be key, he said.

Making matters more complicated, South Korea’s central government has taken a hard line on cryptocurrencies. As well as initially banning initial coin offerings, it has prohibited crypto trading by minors and foreigners.

But despite the challenges, Busan Mayor Park Heong-joon remains optimistic. He said that the city is in talks with the national government to iron out any differences.

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