The South Korean government has decided to focus more on protecting consumers instead of implementing an all-out ban on cryptocurrency trades after an emergency policy meeting on December 13. It plans to concentrate on “management” rather than blanket regulations. However, it is still unclear whether the decision will be able to control the craze for betting money on digital currencies. Some market experts also say that it can cause other problems as the government still hasn’t even defined what virtual currencies are.
In the discussions, some from the Ministry of Justice said that the government should completely ban all the crytocurrency transactions but that wasn’t included in the latest announcement. As the all-out ban can develop into large-scale investor losses, the government decided to ban minors and foreigners from digital currency transactions at home.
The government also prohibited institutional financial companies, including securities firms, from owning and purchasing virtual currencies, acquiring security and making equity investments in order not to stimulate the speculation sentiment of the public.
The Financial Services Commission (FSC) will make a bill to regulate crytocurrency exchanges. To be eligible, exchanges in South Korea will need to have separate deposits for customer assets, fulfill the liability for explanation, verify the user’s real name, have a distributed archiving system for encryption keys and disclose all bid and offer quotes. In addition, the FSC plans to expand a concept of “the Similar Receiving Behavior” and define it as “a business conduct of receiving money by trading or in the name of trading digital currencies. This will clean up crytocurrency exchanges that currently spring up like mushrooms in some degree.
According to South Korea’s largest bitcoin exchange Bithumb, the price of bitcoin dropped from 19 million won (US$17,391) to 17.9 million won (US$16,384) after 10 am on the 13th when the emergency policy meeting was held. However, it rebounded back to 18.7 million won (US$17,117) in the afternoon after the news that there would be no strict regulations came out. Some participants in the virtual currency market even say, “The market will become healthy as well as rev up” and “It means that the authorities have approved the market.”
After the announcement, crytocurrency exchanges also breathed a sigh of relief. There have been rumors that the government will come up with hard line policies like an all-out ban so the market watchers say that they are relatively relaxed measures. The Korea Blockchain Association will announce voluntary regulations to be taken part in by 10 South Korean digital coin exchanges, including the nation’s three largest ones – Bithumb, Korbit and Coinone – on the 15th.
With the latest government’s announcement, banks are joining forces one after another. Woori Bank, Korea Development Bank and Industrial Bank of Korea decided to ban from opening new accounts on virtual coin exchanges, on the 12, and Shinhan Bank took the same measure on the 13th. They were trying to prevent new users from entering the market by prohibiting opening new accounts. However, users who seek to buy bitcoin are flocking to foreign banks that still open new accounts. More than 1,000 online websites related to bitcoin investment share the ways of how to use foreign crytocurrency exchanges.
There are also concerns that the government hasn’t still even given a definition of virtual currencies. Prof. Yoon Chang-hyun of University of Seoul said, “We don’t have a concrete definition of digital currencies so the government had no choice but to come up with such measures for now. There are a lot of reasons to worry about as forces can manipulate the market prices by using legal blind spots.”
An official from the industry said, “Since there has been a huge influx of capital of China in where crytocurrency transactions are banned, the government’s latest regulations will not be able to take effect. There is no much difference between the industry’s voluntary regulations to be unveiled on the 15th and the government’s regulatory measures announced on the 13th, so the price of bitcoin in South Korea will not show a sharp drop for a while.”