40 of total 60 Korean crypto exchanges to close down by September
South Korean cryptocurrency exchanges have a looming deadline approaching fast, to escape which the companies need to comply with a set of fresh requirements and obtain new licensing under the Financial Services Commission (FSC) by September 24.
According to reports from smaller exchange firms, industry actors and representatives in South Korea’s crypto business community, nothing has worked out in contesting new requirements for more than a year without success. As of now, insiders are predicting around 40 from the country’s total of 60 operators would, as a result, be forced to shut down this month.
The prime objection in legislation has been the obligation that all crypto exchanges show proof of operation using real-name accounts at South Korean banks. The FSC has discussed in the regulation that there is a high demand among customers for more protection for their crypto wallets in smaller exchange firms. Despite this, Korean banks have mostly refused to carry out any risk assessment processes for applicant exchanges, except the country’s top four trading firms.
Upbit, Korbit, Bithumb and Coinone – the big four exchanges of South Korea currently account for more than 90 per cent of its total trading volume, and FSC’s new framework of regulations would further accelerate South Korea’s crypto space into a monopolized market, analysts suggest.
Estimates by the head of Cryptocurrency Research Center at Korea University, Professor Kim Hyoung-Joong, has also projected that the mass exchange closures will possibly eliminate 42 “kimchi coins”, which is a nickname for smaller altcoins listed on smaller platforms traded against the Korean won.
Further, the head of local crypto exchange Foblgate, Lee Chul-Yi, has told the Financial Times in an interview that a similar situation like a bank run is expected once the deadline is near when investors won’t be able to cash out their altcoin holdings listed on small exchanges. Chul-Yi said he wasn’t sure if they would “find themselves suddenly poor” and whether regulators can handle “the side-effects”.
As altcoins account for 90 per cent of total traded volume in the country’s crypto market, the FSC has advised exchanges to notify their clients latest by September 17 of the preeminent shutting down.
Cho Yeon-haeng, Korea Finance Consumer Federation president, had claimed that customer protection “is unlikely to be the priority” for the exchanges facing imminent shutdown, triggering “huge investor losses” owing to the resulting freezing of assets and suspension of trading on smaller exchange platforms.
The new measures by the South Korean government are designed to hinder Korea’s enthusiasm for cryptocurrencies amid the dangerous concern that youngsters among retail investors are borrowing heavily to trade. These youngsters who are indulging in heavy borrowing of loans are often struggling with frozen job markets, rising real estate prices and low wages, and therefore are the ones most prone to risks associated with crypto trading.
It is expected that this regulatory obstacle would affect the international exchange operators working with the locals. Binance has already halted trading pairs for Korean won starting this summer in order to ensure it does not foul Korean authorities.
