Both the South Korean government and financial authorities based in the country warned investors about fake cryptocurrency and Bitcoin exchanges.
The South Korean government and their cryptocurrency task force formed by the Financial Services Commission, Ministry of Justice, Ministry of Strategy and Finance, Fair Trade Commission, and Financial Supervisory Commission had held an emergency meeting in which they have discussed the state of the cryptocurrency market in the country and drafted regulations for both investors and businesses on the 13th of December.
Out of four regulations, two of those the South Korean government had drafted were the following:
- To disallow foreigners and underaged investors from trading and
- The regulation of cryptocurrency exchanges in a similar manner to the regulation of legitimate financial service providers.
With the rising number of fake cryptocurrency exchanges, activities, and platforms, the South Korean government had moved for the regulation of cryptocurrency exchanges and pushing of crackdown operations on fraudulent exchanges.
Several fraudulent cryptocurrency exchanges have been exposed by the local Bitcoin community and financial authorities last week. BitKRX which was named after Korea Exchange or KRX is one of the fake exchanges discovered. Korea Exchange is the largest financial trading platform in the country which was established by the South Korea Futures Exchange and South Korea Stock Exchange or KOSDAQ.
BitKRX had first marketed itself as a branch of KRX as it coaxed users into the platform through promoting their businesses as a legitimate and regulated venture by KRX.
One of the largest mainstream media outlets, Chosun, had reported the start of the crackdown of local financial authorities and law enforcement on cryptocurrency exchanges making use of deceptive marketing and fraudulent operations. Local authorities have disclosed that several exchanges in South Korea are unregulated but currently operating as legitimate businesses through utilizing the branding of leading financial institutions as BitKRX is doing.
Chosun had interviewed a member of the South Korean Bitcoin community who stated that “A small group of individuals that are not qualified and experienced enough to run high-traffic and large-scale platforms are running cryptocurrency exchanges in the local market. Consequently, traders are not able to properly execute buy and sell orders in a timely manner, causing major losses and difficulties for investors. Strict regulation of the market by the South Korean market will further stabilize the local cryptocurrency market.”
Optimism in regulations
Bithumb, South Korea’s largest cryptocurrency exchange and second largest global cryptocurrency trading platform, had stated earlier this week that a right set of regulations for investors and businesses will nurture the market and facilitate its growth. The exchange further said that “A right set of regulations will rather nurture the (virtual currency) market, and we would welcome that.”
Cryptocurrency exchanges such as Korbit, Coinone, and Bithumb which process billions of dollars daily must have regulations as a large number of investors in the country’s cryptocurrency market fall have been falling victim to Ponzi schemes and scams.
A $200 million cryptocurrency-inspired Ponzi scheme had been uncovered by the local law enforcement this month as 14 people from MiningMax, a cloud mining Ponzi scheme, were arrested by the local police. Several charges including economic crime and fraud have been filed against them.
Cryptocurrency market data provider CryptoCompare shows that the South Korean cryptocurrency exchange market only currently makes up for 4.6% of the global exchange market, placing it behind Japan, the US, and Europe.
Such schemes can be avoided if investors choose to directly trade cryptocurrencies on regulated exchanges and platforms.