Many of South Korea’s 200 crypto exchanges are facing an “existential crisis” as they struggle to meet the conditions for regulatory approval, in a shock to one of the world’s largest cryptocurrency markets.
To win a business license as a legal trading platform, Korean exchanges are required to partner local banks to open real-name bank accounts for customers. But banks are worried that this could leave them responsible for any money laundering in digital currencies.
Now, a Sept. 24 deadline by the Financial Services Commission is looming, and only a handful of exchanges are expected to meet the requirements, reflecting pressure on the thousands of cryptographic exchanges that have sprung up around the world while global regulators are tightening their grip on the market.
“Many in the [global crypto] the industry fears a big-four regulated exchange scenario similar to South Korea, ”said a crypto market leader.
South Korea’s crypto trade is dominated by four major exchanges – Upbit, Bithumb, Korbit and Coinone. They are expected to survive as they partner with banks such as Shinhan, NH and K-Bank to offer real-name accounts for cryptocurrency trading. Upbit and Bithumb said they were preparing to register with the FSC.
Smaller exchanges say the new regime will favor larger operators at their expense. “We are facing an existential crisis. We want to legitimize our business but the banks are reluctant to offer us accounts in real name, ”said Lee Chul-ie, head of Foblgate, the country’s fifth largest exchange with 100,000 members.
“More problems will be if all these exchanges are left to operate in the gray area. Maybe we should take our company out to sea.”
But some experts said more regulatory scrutiny was needed as many exchanges in the country lacked measures to protect investors and transparent transactions.
“The market is crowded with too many trading platforms. Official registration is necessary to clean up the market even if there could be a short-term confusion,” said Hwang Seiwoon, a researcher at Korea Capital Markets Institute.
The likely shutdown of several exchanges could dampen crypto frenzy in South Korea, one of the world’s most vibrant crypto markets, as the country joins forces. a global reduction of digital assets, that prices have come under pressure from mid-April next a source earlier this year.
Young South Koreans have shown enthusiastic buyers of virtual goods, something that has helped fuel a premium in the price of bitcoin in Korea compared to other countries such as the US. This premium fluctuates dramatically but increased above 20 percent last week, according to data provider CryptoQuant.
“The new law puts us in place,” said a senior bank official. “It will be difficult for us to open new deals with cryptocurrencies, given the inherent risks involved in cryptocurrency trading, unless the government gives us clear guidance.”
The conservative policy of banks has been intensified by recent warnings from financial authorities for crypto investment. Lee Ju-yeol, governor of the Bank of Korea, said in February that the currency cryptocurrency did not have an “intrinsic” value.
Eun Sung-soo, the country’s first financial regulator, told a parliamentary hearing last month: “My honest feeling is that [investors] do not enter [this market]. Cryptocurrency cannot be recognized as a currency, so the government cannot protect those who invest in virtual assets. ”
South Korea has a population too large for crypto trading, with daily turnover exceeding $ 20 billion in local exchanges, more than tripling the daily volume of stock exchanges by investors. sale in the country.
But it remains a largely unregulated market, which has encouraged regulators to take back any “illegal activity involving virtual assets” during a “special application period” from April to June.
The government also plans to impose a 20 percent tax on capital gains of more than Won2.5m ($ 2,200) from the cryptocurrency business, starting next year.
These measures have not discouraged young people from buying digital currency in the context of high youth unemployment and rising housing prices.
“The stock market bores me with little volatility. You can get rich quick with crypto investment even if the risks are higher, ”said MH Chang, a 30-year-old tennis coach, even though his Won30m investment in cryptocurrencies has halved in value recently.