South Korea on Cryptocurrency
Speaking of Korea on cryptocurrency, South Korea is one of the most technologically innovative societies but its recent change in policies to restrict cryptocurrency trading is surprising. As per statistics, Korea is the 3rd largest market for Bitcoin trading after Japan and United States. South Korea account for around 20% of total bitcoin trading. But its recent change of stand for cryptocurrency market because other countries have put restrictions on trading appears to be more of a bandwagon effect.
Government of Korea on Cryptocurrency
The government had warned several times in the past about cryptocurrencies stating that virtual coins cannot play a role as actual currency and could result in high losses due to its volatile nature. However, it did not ring the bell for investors in Korea. Therefore, in a series of announcements since last month, government has introduced a slew of measures to crackdown on cryptocurrency trading.
Starting with “emergency” regulatory measures, authorities released separate set of rules for financial firms restricting them from investing in cryptocurrencies. The rules also levied a capital gains tax on any money conventional investors made from trading the digital currency. In brief, government introduced the following four regulations initially:
1. Prevent unaccredited investors from dealing with losses through highly volatile cryptocurrencies.
2. Prevent strictly regulated cryptocurrency exchanges from operating as speculative platforms for unaccredited investors.
3. Request banks and exchanges to ensure underaged investors and foreigners cannot open trading accounts on cryptocurrency exchanges.
4. Temporarily suspend institutional investors and retail investors from investing in cryptocurrencies.
Might Shut Exchanges
The government has further proposed a legislation which will restrict the extent to which conventional banks interact with bitcoin and other cryptocurrencies. The legislation will prohibit banks from providing settlement services for unidentified digital currency trades on bitcoin exchanges. So, if Koreans use credit card or net banking to buy cryptocurrency at the exchange, they will not be able to do so as there would be no settlement.
As per a top government official, regulators will consider shutting down cryptocurrency exchanges in the future if proposed regulations fail to cool off what they consider to be “irrationally overheated” markets in the country. A report from fellow Seoul publication The Korea Times added that, Korea’s Ministry of Justice had already proposed shutting down cryptocurrency exchanges, although the government has yet to follow-up on this proposal.
The government has also begun conducting onsite inspections of cryptocurrency exchanges, a practice which it began in earnest following the hack of local exchange Youbit and the company’s subsequent bankruptcy filing. According to a statement published following the inspections, regulators deemed the security and management operations of most exchanges to be “inadequate.”
Following the announcements, South Korea’s cryptocurrency exchanges have implemented changes to comply with the government’s mandates. In addition to restricting certain customers from trading
cryptocurrencies, the exchanges have stopped issuing new virtual accounts in accordance with the regulators’ real-name requirements.
The Big four (4) exchanges of Korean crypto market – Bithumb (largest), Upbit, Coinone, and Korbit, have also started to comply with the new regulations. Following the regulators’ announcements, the four exchanges began modifying their terms of service.
Among other measures, it is prohibited to offer services to minors & non-Korean residents and issuing new virtual accounts. These accounts were issued by banks for the exchanges to assign to their customers for anonymous KRW deposits and trading.
Upbit was the first exchange out of the four to post a notice regarding the discontinuation of its services for minors. Those under 19 years old can no longer use Upbit’s services and existing minor customers had until the end of last month to withdraw money from the platform.
Its terms of service have been updated, changing from “under 14 years old to under 19 years old,” Upbit detailed. Upbit also informed its users that “in order to comply with the government’s policy on self-certified accounts, the issuance of virtual accounts for Upbit new subscribers will cease from January 1, 2018.” However, existing members who already have virtual accounts “will be able to make all transactions without change,” the platform noted.
Notice from Bithumb
A notice was also posted on the Bithumb website, suspending those under 19 years old from subscribing and using its services starting on January 1.
The exchange has rephrased the wording in its terms of service from “If you are under 19 years of age, you may be restricted” to “you are restricted.” In addition, virtual accounts will be unavailable for “domestic non-residents.”
Coinone issued a similar notice, stating that trading is limited for “underaged-minors and non-Korean-residents,” clarifying that all its services will no longer be available to them.
Bithumb explained on its website that the issuance of new virtual bank accounts has been suspended in accordance with the government’s regulation, which is a “requirement of real name verification for cryptocurrency transactions.”
Future: Being Cautious
As per our analysis, South Korean government’s move to restrict cryptocurrency market is deliberate. South Korean government has observed that there is a sharp increase in number of speculators in the space.
This is evident from the fact that in recent months South Korea has become the largest cryptocurrency markets for many cryptos like Bitcoin, Bitcoin Cash & Ripple, etc.
Government also noted that value of virtual currencies was much higher on South Korean exchanges than they were on exchanges in other countries. Going by the trend it appears that like USA, South Korea is mandating Know-Your-Customer details to curb money laundering through cryptocurrencies. Some observers even suggest that government may be worried about cryptocurrency being used as a covert economical weapon by North Korea.