The South Korean government will adopt a real-name financial transaction system on cryptocurrency exchanges by the end of January next year. It will also ban banks from providing virtual account services that are currently used for trading cryptocurrencies. Until the real-name financial transaction system is introduced, investors will be prohibited from making a new investment through cryptocurrency exchanges and making an additional investment. The government plans to consider even shutting down the exchanges when a frenzy of speculation doesn’t subside.
The government announced the “special measures to eradicate cryptocurrency speculation” at an urgent vice ministerial meeting presided by Minister of the Office for Government Policy Coordination on December 28.
First of all, the government will require real-name cryptocurrency transactions in January next year. From now on, it requires that any bank account used to fund a crypto transaction must be held under a valid name, which must match the name under its associated account at a crypto exchange. This would help banks confirm investors’ account numbers and resident registration numbers and easily thin out minors and foreigners who are forbidden to trade at local cryptocurrency exchanges as well as catching suspicious illegal transactions like money laundering.
Ju Hong-min, manager of electronic banking at the Financial Services Commission, said, “Since virtual account services will be stopped, investors will only be able to withdraw money from existing virtual accounts after selling digital currency but not to deposit additional money until the real-name financial transaction system is implemented.”
The government, in cooperation with banks, will examine the current management status of payment services on cryptocurrency exchanges by the end of this month and force ones that fall short of the government’s standards. It will also consider ways to set the limit of trading per person.
In particular, the government officially mentioned about the possibility of closing down cryptocurrency exchanges. Hong Nam-ki, Minister of the Office for Government Policy Coordination, said, “We are planning to consider every possible measures in the future, including the shutdown of exchanges.”
Int’l Bitcoin Prices Dropped with Korea’s New Rules
The international prices of bitcoin dropped to the US$14,000 (14.99 million won) level after the South Korean government announced it would implement new rules in a bid to regulate trade in the digital currency in the country. According to digital currency information provider WorldCoinIndex on December 28 (local time), bitcoin was trading at US$14,182 (15.18 million won) as of 7:15 am on the day (4:15 pm GMT), down 8.2 percent from the previous closing day.
The price of bitcoin surpassed the US$16,000 (17.14 million won) level a day earlier, showing signs of an upturn after the Christmas holiday weekend. However, it took a nosedive to below US$14,000 (14.99 million won) during the intra-day trading.
But still, the price of bitcoin is far higher than that in the international market. Bitcoin is currently trading at the 19.9 million won (US$18,581) level on Bithumb, the country's largest cryptocurrency exchange, down 9 percent from the previous day. It is trading at about a 30 percent so-called kimchi premium, over prevailing international rates in Seoul.
Bloomberg said the price difference is largely due to a continuing sign of the country’s obsession for bitcoin, and the difficulty in arbitraging between markets at home and abroad.
Will New Rules Affect Cryptocurrency Market?
After the South Korean government announced it would implement stricter regulations on trade in the digital currency in the country, the domestic cryptocurrency market responded quickly. According to Bithumb, the country's largest cryptocurrency exchange, the price of bitcoin temporarily took a nosedive as of 11:00 am from 21.6 million won (US$20,168) to 18.6 million won (US$17,367) in just 40 minutes. It showed an over up to 15 percent slide. Bitcoin cash prices fell from the 3.81 million won (US$3,557) level to the 3.2 million won (US$2,988) level over the same time range. Other digital currencies showed a similar move.
The price of bitcoin rebounded to the 20 million won (US$18,674) level about noon but decreased to the 19.36 million won (US$18,077) level at 2 pm again. It remained at the 9 percent lower level as of 4 pm compared to the previous trading day, while bitcoin cash stayed at the 11 percent lower level.
However, some say that it will take time for the government’s latest move to gain actual effects. They say that the temporary decline on the day is due to the nature of the market which is sensitive to regulations and it needs more time for the stricter measures to kick in. Others also say that shutting down cryptocurrency exchanges doesn’t sound realistic to short-term speculators.
Meanwhile, financial and currency authorities in not only South Korea but also other countries have recently warned negative side effects of the frenzy over virtual currencies. During an interview with local news channel on December17, French Finance Minister Bruno Le Maire said that he will propose that the G20 group of major economies jointly discuss regulations on virtual currencies, including bitcoin, at the G20 summit in April next year. Other eurozone countries, such as Germany and Italy, also welcomed France’s proposal.
In addition, Israeli securities regulators announced on the 26th that it will ban companies related to digital currencies, including bitcoin, from going public on the Tel Aviv Stock Exchange and weed out companies that are already listed. Israel came up with such measures to protect investors as the price of cryptocurrency related companies’ shares skyrocketed owing to the frenzy over virtual currencies.