Cryptocurrency regulation by South Korea has had a sobering effect on the crypto markets. South Korea has a coveted spot in the global cryptocurrency market, sitting right behind the U.S. and Japan with about 20% of all crypto trades coming from there consistently over the last several months. How big is South korea? In terms of geography, it is just about California and Arizona, the two American states put together. The nation’s population is just about 50 million, but the cryptocurrency craze has literally engulfed the nation. Nearly 35% of salaried citizens in Korea have invested an average of $5,000 in cryptocurrencies and most Koreans see cryptocurrencies as an investment vehicle that will earn them quick and easy money, perhaps in a short span of time too. Before the government clampdown, most cryptocurrencies traded at a premium of 25% or more in the Korean crypto exchanges compared to other markets.
In July 2017, the government officially legalized Bitcoin services for facilitating transfers, payments and trades and that acted as a shot in the arm for a crypto market that was perhaps already overheated. A month later, news engulfed the markets that hackers from North Korea were targeting Bitcoin exchanges in South Korea and 4 weeks after that rumor mills worked over time to spread word that the government of South Korea was planning to reign in digital currencies. By December the rumor mills tweaked their language and said that the government might even impose a blanket on cryptomarkets and exchanges. At this point, the trading volumes in South Korea had gone past the numbers in China!
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With the government announcing more regulatory plans to ban trading in anonymous cryptocurrency to stem speculation, many South Korean exchanges were removed from CoinMarketCap website quoting extreme price volatility as the reason. In the immediate aftermath of this action, some $20 billion was wiped out from the market cap of Ripple. Then came the news of a total ban on cryptocurrencies, from the Ministry of Justice, and retracted hastily by South Korean President’s office.
Virtual bank accounts in the eye of the Cryptocurrency regulation
The local cryptocurrency exchanges in South Korea enjoyed the benefit of virtual bank accounts from major banks like Shinhan Bank, which is also the second largest that country. This allowed investors and traders to withdraw or deposit large amounts via their virtual bank accounts short circuiting their real bank accounts which is time consuming and expensive. This is also a major factor that worked in favor of the crypto craze in South Korea. But, the industry has now come under the government radar and authorities are concerned that illegal funds can gain entry into the market and promote manipulation in cryptocurrency prices on the back of speculative investments.
The Cryptocurrency regulation was coming
The Cryptocurrency regulation has been coming for some time and the South Korean government did take note of the huge fluctuations driven by speculation in the crypto markets since the month of September, 2017. Plans to ban all anonymous trading on the domestic exchanges were revealed in December, 2017. There were also warnings from Lee Nak-Yeon, the prime minister of South Korea on the dangers of cryptocurrencies opening an easy gateway for the youngsters (and particularly so, students) to engage in illegal activities like pyramid schemes and drug trafficking. However, allaying fears from what authorities called a misrepresentation of stricter regulation coming for cryptocurrencies, Kim Dong-Yeon, the Finance minister reassured that cryptocurrencies would not face a ban in South Korea
Would the Cryptocurrency regulation escalate further?
The confusion surrounding cryptocurrency ban also brought along some accusations against government officials of insider trading. The cryptocurrency exchanges in South Korea are also set to be taxed at 24.2% which is in tune with the nation’s tax code that requires corporations earning over 20 billion Won to pay this tax. Apart from anonymous trading, minors and foreigners are also being banned from opening new crypto accounts.
How the Cryptocurrency regulation will be enforced?
Opening new virtual accounts stand frozen crypto traders can no more deposit into the virtual currency exchange except when their bank account and the crypto exchange account names match. The Crypto exchanges have also been requested to overhaul their KYC (Know-your-customer) and ALM (Anti-Money Laundering) systems.
What would be the impact on the Crypto industry?
At least in the immediate term, the effect of the ban is severe and we have already seen the market cap of all coins dropping by as much as 40% in a single day dubbed as Black Tuesday. We can only hope that the markets would adjust itself over the longer term. As we write this, we are already seeing some positive signs with Bitcoin climbing back to the $8,000 levels and most of the top coins making moderate to impressive gains.
South Korea is not alone in reigning in crypto currencies and nearly every nation is more and more concerned and actions in one form or the other have been initiated or are on the anvil. But, interestingly, the blockchain technology which is at the core of all cryptos appears to have many suitors with the potential of impacting our lives just like the internet and mobile telephony as we move along.