Korea's cryptocurrency market is getting more and more disorderly as there is no regulation in place to protect investors.
According to news reports and industry sources on Nov. 12, a company that has been attracting investors to build a cryptocurrency exchange modeled after the FCoin Exchange abruptly shut down its website and chatting room on Nov. 9. The company received Ethereum from investors, saying that it would sell its own cryptocurrency at a discount, and then shut down without notice. Investors’ damage is estimated at 3 billion won to 4 billion won.
The FCoin Exchange, which was launched months ago, runs on a unique model. It reimburses all transaction fees to the users, in the form of the exchange’s native token, FCoin Token. Fifty-one percent of the token supply is locked up and can only be extracted through trading, in a system dubbed “transaction-fee mining” or “trans-mining.”
As the exchange attracts a large number of investors, new exchanges modeled after it have recently mushroomed.
A market watcher said, “It is a phenomenon that appeared due to the lack of a specific definition of what an ICO is. As there is no definition of an ICO, people cannot tell whether a project is an ICO or not.”
As the government has left the cryptocurrency market unregulated, manipulative practices are said to be rampant. It is an open secret that cryptocurrency exchanges are luring investors, who have lost money in other exchanges, by suggesting that they would help them earn profits. Some exchanges make money by listing dubious virtual currencies and inflating their value through manipulation.
It is impossible to trade cryptocurrencies in the Korean currency because banks refuse to open new virtual accounts. However, some new exchanges are advertising that it is possible to trade cryptocurrencies in Korean won by using the exchanges’ corporate accounts, which are known as “honeycomb accounts” that are prohibited by the authorities.
Investors in cryptocurrencies need to be aware that various measures designed to protect investors under the Capital Market Act do not apply to the virtual currency market.