As anyone who follows the cryptospace knows, South Korea is in many ways on the front lines both in terms of trading and in terms of regulatory pushback.
Last month, Bloomberg ran a piece called “A Bitcoin Frenzy Like No Other Is Gripping South Korea,” which detailed some of the reasons why Koreans seem so infatuated with digital currencies. Those reasons included:
- Bitcoin’s stateless status appeals to some Koreans who’ve grown wary of keeping their savings in a country that shares a border with Kim Jong Un’s increasingly belligerent regime in North Korea
- Political turmoil at home may also be adding to the cryptocurrency’s appeal. President Park Geun-hye was ousted in March after an influence-peddling scandal that involved the nation’s biggest companies
- Korea’s individual investors have long had an affinity for supercharged financial wagers. Equity derivatives are wildly popular in the country, in part because they allow investors to make leveraged bets
Whatever the reason, the authorities have become increasingly alarmed with Prime Minister Lee Nak-yon recently going so far as to say that cryptocurrencies are corrupting the nation’s youth. Apparently, he’s concerned that young people hell-bent on making fast money are diving head first into what he’s somewhat derisively called “a raging market.”
“If we let things continue, I feel some serious pathological phenomenons could occur [and] volumes on our cryptocurrency exchanges are more than that of the Kosdaq,” an online statement posted last month read.
The PM is also reportedly concerned that these “serious pathological phenomenons” could lead the country’s youth down the road to committing drug crimes and getting caught up in pyramid schemes. To wit:
There are cases in which young Koreans including students are jumping in to make quick money and virtual currencies are used in illegal activities like drug dealing or multi-level marketing for frauds.
Needless to say, the Youbit debacle didn’t help matters.
The country has adopted a series of measures aimed at controlling the risk. Late last month, for instance, South Korea said it’s considering shuttering at least some cryptocurrency exchanges as part of an effort to do away with what some see as dangerous speculation. For those who missed them, here are the bullet points from a statement by the Office for Government Policy Coordination:
- Government to take proper measures swiftly and firmly while monitoring the trend of cryptocurrency speculation
- Govt to require real-name on cryptocurrency transactions, while banning banks’ offering of virtual accounts to cryptocurrency exchanges
- Govt to prohibit banks’ offering of payment and settlement service to unqualified exchanges
- Govt to strengthen banks’ duty of anti-money laundering on cryptocurrency exchanges
- Govt to crackdown on cryptocurrency-related crimes and severely punish them
Well fast forward to Sunday, and there’s more cryptocurrency news out of South Korea. Specifically, South Korea’s Financial Services Commission and Financial Supervisory Service are set to conduct a joint inspection into accounts offered to cryptocurrency exchanges at Woori Bank, Kookmin Bank, Shinhan Bank, Industrial Bank of Korea, Korea Development Bank, and NH Bank.
Yonhap describes this as “a rare move” and to be sure, it sounds pretty damn extensive. Here’s Yonhap:
The officials will carry out an intensive probe into virtual accounts that the six lenders have provided to cryptocurrency exchanges, said an official of the Financial Services Commission (FSC).
As of December, the number of accounts related to cryptocurrency exchanges came to 111 and their combined deposits are estimated at 2 trillion won (US$1.8 billion).
Each account is presumed to have generated up to millions of virtual accounts.
The authorities will check whether the six banks carried out their obligations to prevent money laundering in managing virtual accounts
They are seeking to cut off fund inflows into cryptocurrency exchanges and shutter cryptocurrency exchanges that have loopholes in their system.
The FSC plans to issue another warning message this week against cryptocurrency speculation.
Choi Jong-ku, chairman of the regulatory body, is scheduled to hold a press briefing in Seoul on Monday afternoon to explain the background of the inspection and the government’s resolve to continue to seek measures to reduce related risks.
South Korea has said it will ban issuance of new virtual accounts to cryptocurrency exchanges under a new measure set to take effect around Jan. 20.
The government also said only real-name bank accounts and matching accounts at cryptocurrency exchanges can be used for deposits and withdrawals in a move to curb a frenzy of speculative investment into cryptocurrencies.
Allow us to gently remind you that this is why we continually warn about regulatory risk in the cryptosphere. It’s not because we “want” to see authorities regulate these things out of existence, rather it’s precisely because it doesn’t matter what we want or what you want.
Governments are getting increasingly concerned about the space and contrary to what your favorite cryptocurrency enthusiast might have told you, almost everyone needs an exchange. Sure, there will always be a way for people to trade cryptocurrencies and presumably to convert them into real money, but the bottom line is that if governments squeeze the exchanges, if companies like Visa make it more difficult for people to use cryptos in their daily lives, and in an extreme scenario, if central banks were to decide to make convertibility illegal, this whole thing ends overnight for the vast majority of regular people who are involved in it.
