Nearly 40 crypto exchanges out of an estimated 60, may wind up operations by September 24 in South Korea, according to a report by Financial Times. South Korean cryptocurrency traders stand to lose more than $2.6 billion due to the shutdown, the report added.
The shutdown is the fallout of new rules laid down by the Financial Services Commission (FSC), South Korea’s financial regulatory body, under the Financial Transactions Report Act. Under the law, foreign and local exchanges will have to register as legal trading platforms, the FT report stated. The FSC said that the rules will enhance consumer protection and prevent unlawful activities.
South Korean crypto exchanges must tie up with local banks to open traceable bank accounts for customers in order to obtain a licence to be a legal trading platform. This will effectively lead to banks shunning smaller exchanges for fear of being exposed to illegal transactions, and dealing with only major exchanges in the country, a Stockhead report explained.
The four exchanges commanding 90 percent of the crypto market in South Korea are:
- Upbit
- Bithumb
- Coinbit
- Coinone
South Korea is one of the biggest crypto markets in the world. Digital currencies, especially crypto, have witnessed an enthusiastic uptake among young South Koreans because of rising unemployment and surging housing prices. The regulatory overhaul comes at a time when the entire world is grappling with regulating an industry difficult to not only control but also monitor. These rules might set a precedent for other countries to follow as they prepare to regulate the sector in their territories.
What are the other implications of the rules?
As many as 42 kimchi coins are set to disappear once the deadline expires in two weeks, FT revealed in its report. These coins are listed on small exchanges which are set to be shuttered come September 24.
Kimchi coins can be described as crypto assets or alternative digital currencies developed within South Korea. They are bought and sold mostly in Korean won, South Korea’s fiat currency. The won is also the third most popular currency in the world with which people trade in crypto, as per Coinhills data.
“A situation similar to a bank run is expected near the deadline as investors can’t cash out of their holdings of ‘alt-coins’ listed only on small exchanges,” Lee Chul-yi, head of Foblgate, a mid-sized exchange, was quoted as saying by FT.
Global exchanges offering won trading will also be affected by the new rules. Binance, the world’s biggest crypto exchange, suspended its won-to-crypto trading service in order to be in compliance with the law which only allows crypto-to-crypto trading.
Crypto sector’s tussle with regulators around the world
Crypto has been facing heat from lawmakers across the world because of its legal and economic implications.
- India has been on the fence about cryptocurrencies for a long time. The Indian central bank first banned it in 2018 and then the ban was overturned by the Supreme Court of India in 2020. A crypto bill is pending before the Cabinet for its approval and is likely to be introduced in the Parliament soon. The government is now planning to classify it as an asset and tax it accordingly.
- Nigeria limited crypto when the Central Bank of Nigeria (CBN) issued a circular in February this year asking commercial banks and other financial institutions to close accounts transacting in, or operating on, cryptocurrency exchanges. All deals involving cryptocurrency are now “prohibited” with “severe regulatory sanctions” awaiting erring outfits. The crackdown by Nigeria’s central bank on cryptocurrency caused outrage among the public because the virtual currency has boomed in the country in the last five years.
- Turkey’s central bank banned the use of cryptocurrencies and crypto assets to purchase goods and services, citing “irreparable” possible damages and significant risks in such transactions. It added that cryptocurrencies and other such digital assets based on distributed ledger technology could not be used, directly or indirectly, as an instrument of payment. It is legal to trade and hold crypto in the country which is planning to introduce legislation in October this year.
- China banned financial institutions and payment companies from providing crypto-related services in May. There were mass arrests in China of people suspected of using cryptocurrencies in nefarious ways in June. Weibo, China’s version of Twitter, also suspended crypto-related accounts. China’s crackdown triggered a meltdown in the crypto markets as it also outlawed mining-related activities. China was the epicentre of crypto mining in the world.
Interestingly, El Salvador recently became the first country in the world to accept Bitcoin as legal tender with many more countries expected to follow suit.
Also read:
- CrossTower eyes Indian cryptocurrency market with the launch of its trading platform
- When it comes to crypto assets as currency, risks outweigh benefits: IMF warns
- India ranks second in cryptocurrency adoption in the world: Report
- Why does India need Digital Rupee? RBI deputy governor says to avoid cryptocurrency’s damaging consequences
- India’s Crypto War 2.0 is not about Encryption
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