South Korea Clampdown on Bitcoin Gathers Pace
By Emma Dunkley in Hong Kong and Song Jung-a in Seoul
The clampdown on cryptocurrencies in South Korea gathered pace this week, with a global index provider deciding not to reference locally traded digital currency — pointing to an “extreme price divergence” — and as regulators probed banks offering virtual coin accounts.
Coinmarketcap, which ranks cryptocurrencies globally based on market cap and trade volume, on Monday said it had removed South Korean cryptocurrency prices from its site because the huge price discrepancy skewed data. The site calculates cryptocurrency prices based on data from global exchanges.
The decision sparked a sell-off in cryptocurrencies as traders closely watch developments in South Korea, a vital source of global demand. The country is home to an “irrationally overheated” cryptocurrency market, in the words of the government.
Cryptocurrencies trade at a premium in South Korea because of keen demand and the difficulty of setting up offshore accounts to buy them. Bitcoin is trading at a 70 per cent premium in South Korea over international rates.
On Tuesday, bitcoin was down 1.5 per cent at Won23.9m ($22,500) on Bithumb, Seoul’s busiest cryptocurrency exchange, compared with $15,350 on Bitstamp, a leading global digital currency exchange.
On Monday, Ripple, a digital currency developed in the US, tumbled as much as 35 per cent, while bitcoin was down as much as 14 per cent, according to Reuters. Ripple said on Twitter that the “recent price fluctuation” was due to Coinmarketcap excluding Korean exchanges from its pricing averages, affecting all listed digital currencies.
Tim Swanson, director of research at US-based Post Oak Labs, said Coinmarketcap “poorly communicated” the changes to the market, which prompted “uncertainty, panic and contagion”.
He added: “It’s not first time they’ve changed something that has caused controversy”, pointing to a decision to exclude some Chinese exchanges a few years ago.
On Monday, South Korean financial regulators said they were looking into six local banks that offered virtual currency accounts to institutions to see if they were abiding by anti-money laundering rules and used real names for accounts.
“Virtual currency is currently unable to function as a means of payment and it is being used for illegal purposes like money laundering, scams and fraudulent investor operations,” said Choi Jong-ku, the country’s top financial regulator.
“The side effects have been severe, leading to hacking problems at the institutions that handle cryptocurrency and an unreasonable spike in speculation,” he added.
Seoul has announced a string of measures to crack down on cryptocurrency speculation, including a ban on anonymous digital currency accounts and legislation to allow regulators to shut down cryptocurrency exchanges if needed.
In December, a local cryptocurrency exchange, Youbit, closed and filed for bankruptcy after being hacked twice.
“No one knows what is going on at these places that handle cryptocurrency because there is no direct regulation system in place regarding these institutions,” said Mr Choi.
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