Investors Unprotected in Virtual Currency Market

The virtual currency trading volume is skyrocketing and concerns are being expressed over a lack of regulations. Under the circumstances, the South Korean government recently began to work on guidelines.

CoinMarketCap announced that the trading volumes for the latest 24 hours of the 14 exchanges that support KRW-based trading totaled US$21,631.26 million in the afternoon of April 15. The amount is even larger than the average daily trading volume of individual investors in KOSPI and KOSDAQ for March this year. In addition, according to the Financial Services Commission, the daily average of Bithumb, UPbit, Korbit and Coinone was 7,946.8 billion won from Jan. 1 to Feb. 25 this year whereas the amount was 975.9 billion won last year.

Meanwhile, systems are failing to catch up with the pace of market expansion. For instance, banks are still responsible for opening virtual currency exchanges’ real-name accounts. A virtual currency exchange in South Korea can do business only after getting a real-name account from a bank and the bank must determine whether to open the account on its own with the financial authorities providing no guidelines at all. In other words, the bank is supposed to be responsible for a problem in the exchange.

Bitcoin arbitrage to take advantage of the so-called kimchi premium is adding to banks’ confusion, too. “Although the government is telling us to reject suspicious remittance requests, the decision is up to us due to the lack of legal definition,” they said. “The current governing law focuses on money laundering prevention and stipulates nothing as to investor protection, exchange operation, market transparency, and so on,” a virtual currency exchange explained, adding, “This is leading to problems such as price manipulation and information asymmetry attributable to underprepared investor notice.”