South Korea crypto crackdown to wipe $2.6bn from ‘kimchi coins’

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South Korean crypto traders are bracing for a loss of more than 3 trillion Won ($2.6 billion) as two-thirds of the country’s crypto exchanges are about to be wiped out in a single day. A regulatory overhaul to one of the world’s largest digital currency markets.

The Financial Services Commission, Korea’s financial watchdog, established September 24 deadline for foreign and domestic exchanges to register as legal trading platforms, part of an effort to tighten supervision over the country’s burgeoning crypto sector.

But most local exchanges are struggling to meet the conditions, with nearly 40 of South Korea’s estimated 60 crypto operators expected to close, according to industry insiders. and regulatory agencies.

South Korea’s cryptocurrency trading is dominated by four major exchanges – Upbit, Bithumb, Korbit and Coinone – which account for more than 90% of the country’s total trading volume.

According to estimates by Kim Hyoung-joong, professor and head of the Center for Cryptocurrency Research, the mass closure of smaller exchanges could also eliminate 42 so-called kimchi coins, the currency. Alternative digital currencies are listed on local exchanges and are traded primarily in Korean won. at Korea University.

Industry data shows that non-bitcoin digital currencies account for about 90% of South Korean crypto transactions, highlighting the highly speculative nature of the market.

Lee Chul-yi, head of Foblgate, a mid-sized firm, said: “A situation similar to banking is expected to happen near the deadline as investors are unable to withdraw funds from the bank. their ‘alt-coin’ holdings are only listed on small exchanges. exchange. “They will suddenly find themselves poorer. I wonder if regulators can handle the side effects. “

The FSC has advised exchanges that do not meet regulatory conditions to notify their clients of any possible closures by Friday, September 17.

To be licensed as a legitimate exchange, South Korean crypto exchanges must work with local banks to open real-name bank accounts for customers. But local lenders have refused to do so out of fear of being exposed to money laundering and other fraud financial crime.

About 20 exchanges have met certain regulatory conditions by setting up security systems for personal information and will be allowed to provide cryptocurrency trading services. But industry watchers say operators will still struggle to survive, given the limited size of their businesses.

Cho Yeon-haeng, president of the Korea Federation of Financial Consumers, said: “Investors will suffer huge losses with trading suspended and assets frozen at many small exchanges because of the protection Customers may not be a priority for exchanges facing closures.”

The regulations will also affect global exchanges that offer won trading. The FSC sent a notice to 27 foreign crypto exchanges operating operations for Korean traders.

Binance, the world’s largest cryptocurrency exchange, last month suspended its won-to-crypto cryptocurrency trading service to “actively comply with local regulations,” the first such move from a major operator abroad.

The South Korean won is the third most widely used currency for bitcoin transactions, after the dollar and the euro, accounting for about 5% of global transactions, according to data from Coinhills.

Regulators hope the overhaul will reduce crazy cryptocurrency in Korea. Many young Koreans – who have to face high unemployment and soaring housing prices – remain enthusiastic digital asset buyers, despite currency volatility.

Bitcoin has been on a rollercoaster ride this year, rising to over $60,000 in April before plummeting below $30,000 in June.

Since then, it has recovered to around $46,000, as risky bets by developing countries include El Salvador’s Pioneering Adoption of digital currency as legal tender.