South Korea’s ‘Kimchi Coins’ Feel Heat as Crypto Rules Tighten

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SEOUL – A South Korean crypto-asset exchange firm has started handling fewer altcoins, non-bitcoin cryptocurrencies, a clean-up effort undertaken amid sudden declines in currency markets that are hurting investments by young people but which has met with vehement opposition from coin issuers and investors.

There are more types of cryptocurrency in South Korea than in the United States or Japan, including “kimchi coins,” which are mainly issued by South Koreans.

Upbit, the country’s largest stock exchange, has taken the leap. On June 11, 25 of the 178 tokens were flagged as “coins to watch” because “their overall valuation does not meet internal standards and investor protection measures are needed,” the exchange said in a statement. For five others, buying and selling with Korean won has been stopped, although trading for them with other cryptocurrencies is still allowed. On June 18, the company announced that trading in 24 of the 25 reported tokens would be halted.

Other exchanges were surprised by Upbit’s decision. “I’m sure they have their own criteria, but I was surprised that they included coins that are expected to grow,” said a senior executive from one of the other exchange traders. Cryptocurrencies that could no longer be redeemed for won included popular kimchi coins such as Paycoin, which can be converted into bitcoin and used to make purchases from around 70,000 participating sellers, and Quiztok, which consumers can accumulate by correctly answering quizzes.

Other major players have followed suit. Coinbit halted trading in eight tokens and designated 28 more for oversight. On June 17, Bithumb suspended trading of four tokens.

These measures are the result of an amendment to the Financial Regulation which entered into force in March. Cryptocurrency operators will have to shut down if they do not file a report with the government by September 24. The report has three requirements: 1) acquire an information security management system, for security verification, 2) confirm that the exchange has opened an account where deposits and withdrawals can be verified using real names, and 3) ensure there are no legal or regulatory violations by company officials.

The rules are designed to prevent cryptocurrencies from being misused in money laundering, but they are also intended to encourage some of the hugely proliferating exchanges to exit the market. The Financial Services Commission, Financial Supervisory Service and other authorities have started working with stock market operators to help them meet reporting requirements.

The measures taken in South Korea reflect growing global scrutiny of cryptocurrencies and the way they are traded. In recent days, the British financial regulator has ordered Binance, one of the world’s largest cryptocurrency exchanges, to cease operations in Britain. The Japanese regulator also said Binance was not registered to operate there.

In South Korea, exchanges will only survive if they can meet the demands of the authorities and form a partnership with a bank that will open accounts that allow real name verification. Reducing the number of altcoins traded is “an effort to make a good impression on the authorities,” according to another trader.

But the values ​​of cryptocurrencies that were removed from exchanges without clear criteria have plummeted across the board. Coin issuers and investors are strongly opposed to this move.

Kim Kab-lae, director of the KCMI Financial Consumer Protection Research Center at the Korea Capital Market Institute.

Altcoin developer Pica has filed a lawsuit with Seoul Central District Court to overturn the trading suspension, saying, “Upbit’s unilateral delisting is unfair.” He also revealed that he was made to pay for coins in addition to transaction start-up fees. Upbit responded that the developer was “maliciously spreading lies” and that it would take legal action.

Experts are divided on moves to force tokens out of trade.

“Some have pointed out that there are too many altcoins in Korea, even though the market is still small compared to the United States,” said Kim Kab-lae, director of the KCMI Financial Consumer Protection Research Center in Korea. Capital Market Institute. “It’s good that the exchanges are voluntarily deleting problematic cryptocurrency transactions.”

“When the exchanges start trading, they review the issuer’s white paper (business plan), and after the start of trading, they check if the issuer complies with the document and stop trading if there is a violation. “, did he declare. “It is important to maintain consistency and not to discriminate by token.”

But others think differently. “South Korea is the Holy Land of cryptocurrencies because it loves new things and actively invests in altcoins. It has the potential to become a ‘digital Wall Street’ with so many amazing tokens emerging,” Kim said. Hyoung-joong, head of Korea University’s Cryptocurrency Research Center. “But if the number of coins decreases due to the holdback, investors’ options will narrow and the market will become small and contained.”

Kim Hyoung-joong, director of the Korea University Cryptocurrency Research Center.

The crypto industry in South Korea is looking to expand in the United States, he noted. “Rather than continuing to do business in South Korea and worry about the government, I recommend that they have a good reputation in the United States and be listed on the Nasdaq,” he said. “Upbit, Korea’s largest stock exchange, has a higher trading volume than Coinbase, which was recently listed on Nasdaq, so it will be appreciated even more.”

He opposes stricter regulations from governments that are pessimistic about cryptocurrencies. “Policymakers need to recognize that cryptocurrencies are an important industry. Regulation could nip this new industry in the bud before it has a chance to thrive. Bad investments are a personal responsibility. The government should sit down and watch, ”he said.

To survive the new financial regulations of the government, the exchanges have eliminated the altcoins they are willing to manage. Banks, traditionally wary of the risks of money laundering and reluctant to get involved in cryptocurrencies, will they join the stock exchanges? The crypto industry and investors are monitoring the situation closely.

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