South Korea, long known for having one of the world’s most active cryptocurrency trading communities, is once again taking aim at the virtual asset industry. On January 4th, the country’s top financial regulator, the Financial Services Commission (FSC), proposed an amendment to ban local citizens from buying cryptocurrencies using credit cards.
It follows news last month that the South Korean government will release the crypto holdings of over 5,000 of its top officials. Another attempt to shine a light on the murky world of digital assets.
The official reasoning given for the proposed ban is to restrict citizens from accessing foreign exchanges by limiting capital outflows and speculation, and cracking down on potential money laundering.
There are plenty of other reasons why the South Korean authorities are nervous about digital assets, however.
This latest proposal comes on the heels of several high-profile cryptocurrency failures involving South Korean companies and developers. In May 2022, the spectacular implosion of the algorithmic stablecoin TerraUSD and its sister token LUNA, created by the Seoul-based Terraform Labs, wiped out $40 billion overnight and kicked off a nightmare year for digital assets.
Then, just months later, controversy erupted when major gaming company Wemade unevenly expanded distribution of its Wemix token, used in blockchain game Mir 4. Local exchanges banded together under the newly formed Digital Asset Exchange Alliance (DAXA) to delist Wemix in order to protect investors. However, Wemade filed an injunction claiming unfair competition, initiating the first legal dispute over a major coin in South Korea.
Bithumb, a member of the DAXA consortium, won the dispute citing Wemade’s misreported circulation figures for its token.
These debacles in quick succession have regulators scrambling to rein in the “Wild West” atmosphere surrounding digital assets in Korea. And while increased oversight is arguably long overdue, the constantly shifting goalposts and restrictive measures have bred resentment and frustration among traders who have long embraced cryptocurrencies, not unlike elsewhere in the world.
Regulations from 2018 already require Korean crypto users to register real-name accounts at local exchanges verified with local banks. So why does the FSC feel the need to cut off foreign exchange access as well?
Aside from the stated objectives—to limit capital outflow, money laundering and speculation—the likely answer is increased government control and ability to monitor trader behavior and money flows. For years South Korea has walked a fine line. However, repeated scandals have tipped the scales in favor of tighter reins. Including a call for the public to name and shame unlicensed exchanges.
It remains to be seen whether cutting off foreign exchange avenues will truly curb speculation or simply drive it underground. With cryptocurrencies intrinsically borderless, determined traders will likely find workarounds.
Meanwhile, Koreans still have plenty of local exchanges to trade on, including Coinone, Korbit, Hanbitco and GOPAX. Huobi Korea announced it was winding down its services on January 4, citing the “current business environment.”
The proposed amendment is currently open for public feedback until February 13th. While expected to pass in some form, backlash may impact the final shape of the policy. Either way, South Korea’s crypto saga seems far from over.