South Korea crypto exchanges will shut down en masse next week | Fortune
Still, the sudden closure of more than half of South Korea’s cryptocurrency exchanges could pave the way for cryptocurrency monopolies to emerge, which some say could hurt ordinary investors.
survival of the fittest
The South Korean crypto market first emerged in late 2017, when bitcoin trading skyrocketed in popularity among ordinary citizens of all ages looking to cash in on the digital currency’s rising price. The country became the third largest trading market in the world behind the US. uu. and japan at the time. The market has since fluctuated, along with the price of bitcoin, but over the past 18 months, South Korea’s crypto market has seen a resurgence in line with the pandemic-fueled global boom in digital currencies. The Korean won now ranks third globally behind the US. dollar and euro as the most widely used currency for bitcoin trading, according to data from coinhills.
Reading: Korea bans bitcoin
Young retailers, facing rising real estate prices and stagnant wages in a competitive job market, helped fuel South Korea’s crypto frenzy this time around. For young investors, the cryptocurrency market provided easy access to trading and the prospect of quick profits. Around 60% of new crypto investors in South Korea are in their 20s and 30s, according to data released in August by Yoon Doo-hyeon, a member of the political affairs committee of the South Korean National Assembly.
Seoul has in recent months increased its scrutiny of the country’s cryptocurrency industry to control illicit activities such as money laundering and tax evasion, and what regulators consider risky financial activity among young retail traders. . in 2022, the government will also introduce a crypto capital gains tax; investors making more than $2,135 in trading profits will face a 20% fee.
Last September, state authorities raided the offices of bithumb and coinbit, the country’s second and third largest exchanges by trading volume, over fraud allegations. Coinbit later told Coindesk that its former employees, now facing fraud charges, carried out “wash trading” by creating fake user accounts that made trades to inflate the exchange’s trading volumes. After the September raids, South Korean police also investigated Bithumb’s former president, Lee Jung-hoon, and seized company shares from him. Police have opened a second fraud investigation in Lee after a group of 14 investors filed another complaint in July, according to local media reports.
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Regulators say cryptocurrency scams in South Korea are getting bigger and more frequent, thanks to the rapid growth of the industry. Crypto fraud reports are up 42% in 2020, regulators say, and several crypto exchanges, in addition to bithumb and coinbit, have been accused of fraud. In June, for example, police arrested four executives of the now-defunct Exchange V Global on fraud charges; authorities say the case involves 52,000 victims and losses of more than $1.9 billion.
In addition to the new rules, the government is creating a new crypto bureau this month that will operate under the fsc to oversee the country’s digital assets. South Korean regulators are not alone in their crackdown on the crypto industry: regulators around the world, from China to the US. uu. they are seeking tighter control for some of the same reasons; to stop financial crime and improve investor protection.
Former FSC President Eun Sung-soo, who resigned in August, has been an outspoken critic of South Korea’s crypto industry. Eun said in April that cryptocurrencies “have no intrinsic value… [and] are not a real currency. he would advise people not to invest in cryptocurrencies. it’s too risky to trade [cryptocurrencies] considering their high price volatility.” eun’s successor, koh seung-beom, maintains the same aggressive stance towards the crypto industry; koh in August rejected the idea of cryptocurrencies as a legitimate financial asset .
in march, the fsc, under the direction of eun, introduced new rules stipulating that domestic and foreign cryptocurrency exchanges must be vetted by the financial intelligence unit (fiu) before their applications are transferred to the fsc . To gain FSC approval, crypto platforms must require users to register with their real names and bank accounts. Platforms must also comply with anti-money laundering standards by having their information security systems certified by the government internet watchdog.
The rules force exchanges to partner with traditional banks, which have the final say in confirming the partnership. Banks are at risk if funds are used for financial crimes, so they have been unwilling to partner with smaller exchanges that lack the resources to implement strict anti-money laundering systems. On Friday, the sixth largest exchange, Huobi Korea, announced that it had suspended trading in Korean won due to its inability to obtain a banking association.
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only four of the south korean platforms, upbit, bithumb, coinone and korbit, have submitted their registrations to the fiu, meaning they have obtained both banking associations and internet regulator certification.
Some say that the mass shutdown of exchanges penalizes ordinary investors. Most of South Korea’s altcoins (cryptocurrencies other than bitcoin) will be lost through exchange closures, putting $2.5 billion in investor assets at risk, according to estimates by kim hyoung-joong, professor and director of the korea university cryptocurrency research center. The FSC urged investors to withdraw assets before September 1. the January 24 deadline, warning that those assets could be unrecoverable if an exchange closes. The FSC did not respond to Fortune’s request for comment.
Last week, a group of small and mid-sized bourses held a joint press conference saying the rules “will allow an unbalanced monopoly to emerge.” Noh woong-rae, a member of parliament from the Democrat party, also warned that “if a monopoly market emerges, any exchange could list or remove coins, or raise transaction fees at will,” according to local media reports.
Others say fears of exchange monopolies are overblown. The abundance of “offshore options for centralized exchanges and the massive growth of decentralized exchanges shows that the options offered to traders are increasing, not decreasing,” says Justin D’anethan, head of sales at Eqonex. the strict rules mean that only the “least compatible and least prepared” platforms will be eliminated, he says.
“These regulations legitimize the crypto space and clarify industry practices for participants who may stand up to it,” says d’anethan. “In the long term, the regulator’s efforts will be positive for the industry.”
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