As the Ministry of Justice (MOJ) decided to make a special law to shut down cryptocurrency exchanges on January 11, there has also been criticism inside and outside of exchanges that its move is like cutting off your nose to spite your face, stirring up a controversy.
The government initially planned to close accounts in cryptocurrency exchanges after checking them. Instead, it has come up with the special law to close down cryptocurrency exchanges, which was prepared by the MOJ, as the final measure even after speculation in cryptocurrency trading within the country didn’t quiet down. However, the more the government announced its regulations, the more investors have considered them favorable factors and expanded their investments in digital currencies.
An official from the legal profession said, “The idea of shutting down cryptocurrency exchanges without question as virtual currency trading seems to be speculative bubble can only intensify confusion among investors. Measures that can relieve the shock of the market as a breakwater should come out first but this is often not the case in reality. There are no considerations about the possibility of digital currency going to the black market in the future. Such administrative measure can bring about the worst result that breaks a butterfly on the wheel.
Minjoo Party lawmaker Park Young-sun expressed concerns about side effects caused by the closedown of exchanges through her facebook on the 11th. She said, “Money will be taken out of the country and there will be problems with the technological development related to blockchain and cryptocurrency in the Fourth Industrial Revolution. It will be also impossible to block the cryptocurrency distribution and market by artificial means in the future.”
Many politicians in the National Assembly, including Bareun Party lawmaker Ha Tae-Kyung, are showing negative reaction to the government’s sudden announcement to make the special law at the moment when they are preparing for the bill related to virtual currency. An official from the National Assembly said, “Even when the government’s special law goes up to the standing committee, all the bills prepared by other lawmakers will be discussed together. The special law will not be able to pass first.”
Accordingly, the government announced to come up with measures to calm down the frenzy of speculation in cryptocurrency-related investments under the current law. At the meeting of the Fourth Industrial Revolution Special Committee on the 11th, Financial Services Commission (FSC) Chairman Choi Jong-ku said, “My stance is the same as the MOJ. We will make an effort to allay the frenzy under the current law first. When virtual currency trading continues to work as it is now in the long term, the law to shut down exchanges is a must.”
Plunge of Cryptocurrency Prices & Exodus of Investors
After the Ministry of Justice (MOJ) announced that it has decided to shut down cryptocurrency exchanges on January 11, cryptocurrency prices plunged after noon. The local price of bitcoin, the largest digital currency by market cap, on Upbit was some 21 million won (US$19,599) at 12:00 pm but it nosedived 33 percent to 14 million won (US$13,066) at 1:40 pm. Considering the fact that bitcoin prices were at the 28 million won (US$26,132) level on the 6th, the figure dropped a whopping 50 percent.
The price of other digital currencies also fell about 30 percent. The price of bitcoin slightly rebounded to 18.5 million won (US$17,266) as of 4:00 pm but it still fell short of its prices before the announcement.
Accordingly, cryptocurrency investors are upset. The number of people joining a petition asking the presidential Blue House to halt the crackdown on the virtual currency, which started on December 28, was around 30,000 in the morning but it nearly doubled to 540,000 as of 4 pm on the 11th.
Some investors are seeking to transfer their assets to overseas cryptocurrency exchanges to dodge the government’s regulations. Recently, an increasing number of people are asking about how to use foreign cryptocurrency exchanges on online communities. Many say that it is easy to use cryptocurrency exchanges abroad. All investors need to do is to sign up for overseas cryptocurrency exchanges, create a wallet and wire digital currencies from a wallet on domestic exchanges. Some exchanges even provides language support for Korean. The problem is that this can lead to outflow of national wealth. In particular, assets will fall into foreigners’ hands when domestic investors fail in investment and lose virtual currencies. Investors even can take money and go abroad to invest just like Chinese. A CEO at a cryptocurrency exchange said, “The Chinese government carried out a closure of cryptocurrency exchanges, Chinese are taking money to South Korea and Japan and are trading digital currencies through a remittance. South Korean investors will also show the similar move.”
There are growing criticism over the MOJ’s sudden announcement in the industry. It only intensified confusion on the market by sending the message of the shutdown of cryptocurrency exchanges even before the bill goes to the National Assembly. There are also concerns that cryptocurrency trading will be in shadow when exchanges are closed down. Cryptocurrency exchanges guarantee safe transactions by providing a kind of escrow function. When they are closed down, however, investors need to use illegal private exchanges or make transactions with individuals, creating more fraud victims.