On January 14, the South Korean government announced a new, more stringent regulatory policy concerning digital currencies. This announcement, preceded by comments from the South Korean Justice Minister at a recent press conference suggesting a complete ban on crypto trading, led to widespread confusion and triggered a palpable reaction in the global cryptocurrency markets. The rumors triggered a backlash from citizens, with over 200,000 signatures gathered on a petition to stop cryptocurrency regulation.
Regulators Crack Down on Anonymous Trading
South Korean regulators issued a clarification on January 15, explaining that there were no plans to ban trading, a sentiment that was confirmed on January 31 by finance minister Kim Don-yeon. While a full-on ban is off the table, new regulations are still going into effect. The main focus of the policy concerns ending anonymous crypto trading in South Korea.
As of January 30, South Korean exchanges are no longer able to offer traders anonymous accounts. Going forward, all exchanges must require users to go through a verification process that complies with the country’s new AML/KYC (Anti-Money Laundering / Know Your Customer) policies. While this is a change for South Korea, many other countries have already enacted similar regulations targeting exchanges that enable anonymous trading. South Korea’s push to tighten policies surrounding cryptocurrencies came shortly after Coincheck, a Japanese Exchange, suffered a hack that lost upwards of $500 million USD worth of digital currency.
While Coincheck is not the first exchange to suffer a major security breach, the incident may have served as a catalyst in driving South Korea and other countries to take a closer look at regulation. As cryptocurrencies experience wider adoption, nations around the globe are taking steps to regulate the emerging asset class built on blockchain technology.
South Korea’s Impact on Global Cryptocurrency Market
Despite clarification from officials concerning South Korea’s policies, a number of popular mainstream media outlets pushed the “total ban” narrative, creating a visible panic in the global cryptocurrency market. In South Korea, the local price of Bitcoin dropped by 21%. A drop was also experienced throughout the market at large, with Bitcoin prices on Bitstamp down over 10% in an afternoon. While there may be other factors contributing to the latest ongoing dip, misinterpretation and sensationalist reporting concerning South Korea’s new regulations undoubtedly played a role.
In the days following initial reports on South Korean regulations, the global cryptocurrency market saw a huge outflow of money, dropping from $700 billion to $400 billion, with Bitcoin down roughly 30%. While a number of outlets proclaimed the January drop to be the death of Bitcoin, it is worth noting that Bitcoin experienced at least 3 similar or larger drops in 2017; it went down by a whopping 40% barely 6 months ago, from August to September of last year.
Interestingly, announcements and reporting concerning the possibility of regulation appeared to have more of an impact than the actual implementation. A representative of South Korea’s Bithumb Exchange told CNBC that adopting the new policies had “gone smoothly” and that, “Nothing has changed in terms of coin transaction.” Rumors of a South Korean crypto ban, echoing China’s 2017 ICO ban, likely played a larger role in global cryptocurrency market activity than the regulations themselves.
The Regulated Future
The recent developments in South Korea reflect a larger trend towards government regulation of digital currencies. In theory, the goal of regulators is reducing fraud, money laundering, ICO scams, and other financial crimes that might be occurring within the global cryptocurrency market. South Korea’s push to eliminate anonymous trading on exchanges holds this space accountable to the same AML/KYC policies regulating traditional financial markets.
While many within the cryptocurrency community oppose regulation as antithetical to the vision of Bitcoin and blockchain technology, particularly when it infringes on personal privacy, there are also those who believe accountability to regulatory agencies to be an essential step towards mainstream adoption. Many operating within the blockchain space believe that regulations will ultimately have a positive impact on the global cryptocurrency market in the long run. Julian Hosp, one of the founders of blockchain-based startup TenX, speculated that, “…more legal security working in the ecosystem, it’s going to have some short-term downsides, but long term, it’s going to have a really, really big boost.”