Carnage In Cryptocurrencies: South Korea Exchange Raids, Trading Ban Prove Governments Are Serious

Listen, South Korean President Moon Jae-in wants you to know that he hasn’t decided whether or not to shutdown cryptocurrency exchanges yet. See that’s just “one of several” measures he’s considering. Or at least that’s what his office told Bloomberg via text message on Thursday.

But while Moon insists nothing is finalized, the writing has been on the wall for quite a while. 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, 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. Needless to say, the Youbit debacle didn’t help matters, and late last month, 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. Fast forward to this week and South Korea’s Financial Services Commission and Financial Supervisory Service launched a joint inspection into bank accounts offered to cryptocurrency exchanges.

Although it’s difficult to sort rumor from reality amid the flurry of headlines that have crossed over the last 12 or so hours, it looks like South Korea is going to go ahead and ban cryptocurrency trading. Local exchanges have reportedly been raided and will likely be charged with tax evasion, according to Reuters.

Bithumb is disputing the Reuters story, saying only that it had a short meeting with tax officials, while Coinone (also mentioned by Reuters) told FT that authorities “asked for some data such as cryptocurrency trading volume, our exchange’s sales and whether we are paying corporate tax well.”

So I guess this depends on your definition of “raid.”

Since last month, Coinone was been under police investigation for its margin trading business that facilitates crypto short selling. “Police see this as gambling and local authorities have also advised us to stop the service as they think it fuels the market frenzy,” Coinone went on to say, in the same FT piece linked above.

“For the last few months the Korean government has been making it very clear they want to bring this speculative activity under control,” Thomas Glucksmann, Hong Kong-based head of APAC business development with cryptocurrency exchange Gatecoin Ltd., told Bloomberg. “This isn’t really too much of a surprise.”

No, it’s not. In fact, we and plenty of others have been telling you this was bound to happen in South Korea for months.

As Goldman wrote on Wednesday, “Bitcoin exchange volumes are now dominated by investors in Korea and Japan,” and because those countries have “no recent history of monetary instability and/or unmet portfolio diversification needs,” the only conclusion to come to is that it’s a speculative mania just like the government says it is.



So while Moon is officially sticking with the notion that the proposal by the justice minister to shutdown crypto exchanges is just one of several that the ministry has prepared and as such, nothing is final, don’t be surprised when the ban is official.

This comes at a particularly delicate time for the cryptosphere. Weeks worth of rumors about China shutting down Bitcoin mining operations were seemingly confirmed on Wednesday by the Wall Street Journal and Warren Buffett was out yesterday suggesting that he’d bet against “every one” of the cryptocurrencies if he could.

Bitcoin is down more than 20% over the last five days and fell below $13,000 on Thursday:


Ripple is super fucked, and is now down more than 50% from its all-time highs hit earlier this month. It’s now markedly below its Monday flash crash lows:


Here’s the heatmap:


We’ve said this before and we’re going to go ahead and say it again. There are lots of folks out there – many of whom have a vested interest in this space and some of whom are just dumb ass bloggers who have been railing against the establishment for a decade – that are telling you this space can’t be regulated out of existence. Bottom line: THEY ARE LYING TO YOU.

As one derivatives trader we spoke with back in November put it, “almost everyone needs an exchange.” When you shutter these exchanges or worse, if governments were to make convertibility into dollars, yen, euros (or whatever) illegal, this whole thing would go “poof!” overnight.

Does that mean no one anywhere would be trading cryptocurrencies? Well of course not. People who really want to will find a way. But the retail investors who are driving this speculative mania aren’t going to be interested if the exchanges are shutdown and if convertibility into actual, real money is made exceedingly difficult.

This entire thing is a castle in the sky and South Korea is proving, beyond a shadow of a doubt, that there is exactly nothing stopping governments from up waking up on the “wrong” side of the bed one morning and saying: “You know what? Fuck cryptocurrencies – we’ve had enough of this.”

So when you hear people use the “old men yelling at clouds” analogy, just know that the difference here is that these “old men” (i.e. governments) have the power to actually affect the “clouds” they’re yelling at.



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