The deadline for South Korean cryptocurrency exchanges to meet the new compliance requirements is fast approaching – all traders are required to be officially licensed by the Financial Services Commission (FSC) no later than September 24.
Industry players and representatives from smaller exchanges have been contesting the new requirements for much of the past year, but to no avail. According to reported, now insiders expect around 40 of the estimated 60 cryptocurrency traders in the country to be forced to close.
The crux of their objection was the requirement that all exchanges demonstrate that they operate using real accounts at South Korean banks. The FSC justified these moves by arguing that there is strong customer demand for one more protection for their assets held on smaller crypto platforms. Yet South Korean banks have, for the most part, refused to engage in any risk assessment process for requesting exchanges, with the exception of the country’s four major trading platforms.
These four exchanges – Upbit, Bithumb, Korbit and Coinone – already account for more than 90% of South Korea’s total trading volume and in recent months experts have argued that the new FSC framework will be ready to further cement the crypto sector. of the country as a monopolized market.
Furthermore, estimates by Kim Hyoung-joong – professor and head of the Cryptocurrency Research Center at Korea University – predict that the mass closure will eliminate 42 “kimchi coins”, nickname for smaller altcoins listed on smaller platforms and traded with the won. Korean. Lee Chul-yi, head of local cryptocurrency exchange Foblgate, told the Financial Times that:
“A similar situation to a bank run towards maturity is expected, as investors will not be able to cash out their holdings of alt-coins listed only on smaller exchanges. […] They will suddenly find themselves poor. I wonder if the regulators can manage the side effects. “
With altcoins estimated to account for 90% of the volume traded in South Korean crypto markets, the FSC reportedly advised exchanges planning to stop their activities to notify their clients no later than September 17. . Cho Yeon-haeng, president of Korea Finance Consumer Federation, said customer protection is unlikely to be the priority for those exchanges facing an imminent closure and therefore expected “huge losses for investors” due to the freezing of assets and suspension of trading on smaller platforms.
Regulatory pressure will also affect international exchanges. This summer, Binance has already preemptively stopped trading pairs with Korean won to avoid limitations by the Korean authorities.
The new measures have been taken to curb Koreans’ enthusiasm for cryptocurrency trading, particularly from younger retail investors, who are apparently prone to borrowing large funds for trading as they struggle over suppressed wages. a frozen labor market and a real estate market that records constantly rising prices.
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