South Korean cryptocurrency exchanges could be forced to downsize or start looking abroad for business expansion opportunities as government regulations take their toll on the country’s crypto businesses and investors, per industry sources.
According to media outlet Money Today, a number of South Korean cryptocurrency holders are transferring their funds to overseas exchanges to avoid having to deal with South Korean banks, most of which now follow government guidelines that require Korean won withdrawals to be made through real-name, social security number-verified bank accounts.
The guidelines require that all exchanges agree six-month contracts with a South Korean bank for customer real-name deposits and withdrawals, the terms of which are subject to change upon each renewal. Banks are required to monitor these accounts for potentially suspicious activates and report their findings to the government.
As trading continues to decline in the country, banks that had invested in cryptocurrency exchange-related infrastructure are thus finding themselves “spending more on risk management” as a result of the government’s regulations – and finding dealing with exchanges a lot less profitable than they had initially expected.
The media outlet quotes an anonymous employee at a South Korean cryptocurrency exchange as saying, “Exchange profits are down 90% on what they were when the market was at its peak [in December 2017-January 2018]. The exchange industry as a whole invested a huge amount of money in technology, management and security systems in anticipation of market growth, but instead, many are now losing money and may eventually have to look to reducing the size of their workforces.”
Market leader Bithumb recently sold a controlling share in the company to a Singapore-based enterprise, plans to launch operations in Hong Kong before the month’s end and also intends to expand its activities to Singapore and Europe in the near future. Its closest rivals are also looking to expand overseas, with Upbit set to open a Singapore branch and Coinone opening an exchange in Indonesia in August this year.
However, the same media outlet also quotes a bank official as stating that South Korean exchanges’ overseas expansion plans “would do nothing” to improve the lot of domestic customers, and thus would do little to help exchanges’ causes when it came to striking deals with banks – as required by the government’s banking guidelines.
Kim Hyung-joong, a professor at Korea University, told Money Today, “Investors are becoming increasingly anxious […] The government should consider the possibility of fostering the cryptocurrency sector by introducing new [and beneficial] crypto-specific legislation.”