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As crackdown looms, South Korea's defiant crypto fans dig in

As crackdown looms, South Korea's defiant crypto fans dig in
As crackdown looms, South Korea's defiant crypto fans dig in   -   Copyright  Thomson Reuters 2021
By Reuters

By Joori Roh

SEOUL – Yun Hae-ri, a 26-year-old South Korean cryptocurrency investor, has seen the value of a coin named Metadium nearly wiped out since she bought it in April.

Like many South Korean retail investors, Yun has thousands of won in smaller cryptocurrencies, seen as alternatives to bitcoin, which have plummeted in value as regulators crack down on the sector.

By Sept. 24, South Korea’s numerous cryptocurrency exchanges will need to disclose risk management and partner with banks to ensure trading accounts are held by real people.

The rules, analysts say, could result in exchanges delisting hundreds of such “altcoins” as they vie for tie-ups with banks.

“I have to admit that I did not look at the operator’s financial statement, but mostly invested based on the coin’s popularity and appearance on media and friends’ recommendation,” said Yun, who trades Metadium on Upbit, the country’s largest crypto exchange. She now worries Metadium could be delisted ahead of the September deadline.

The new law was passed in early March and since then, only four of more than 60 exchanges—Upbit, Bithumb, Coinone and Korbit—have secured the partnerships with banks needed to be registered as virtual asset service providers.

The law also requires them to obtain a security certificate from South Korea’s internet security agency. Only 20 exchanges had received such certificates as of May.

Metadium’s price plunged as much as 94% from early April to 32.1 won ($0.0281) in late June on Upbit, as several local cryptocurrency exchanges took dozens of altcoins off their platforms.

In late June, Upbit halted trading of 24 altcoins, such as Komodo, AdEx, Lbry Credits, Ignis, Pica and Lambda. Another major operator Bithumb nixed four coins last week.

Smaller operator Probit removed 145 coins all at once in June, sparking concern among investors that more coins could be removed as the September deadline approaches.

Both Upbit and Bithumb officials told Reuters that the delistings were part of their periodical coin reviews, not because of the new regulation.

However, both the number of listed coins and their risk profiles would be weighed by banks as factors in their choices around exchange partnerships, according to opposition lawmaker Yoon Doo-hyun’s office.

GOPAX, one of the more popular exchanges outside of Korea’s major four, said it is in talks with multiple banks and was optimistic about meeting all requirements ahead of the deadline.

‘HODL’

The regulation targets money laundering and high leverage among young South Koreans betting on a sector that has seen coins such as ether halve after rapid surges.

According to data gathered by the office of another opposition lawmaker, Kwon Eun-hee, more than two-thirds of new investors on the four major exchanges during the first quarter were under 40.

BofA Securities said in a report published in May that the estimated daily volume of South Korean cryptocurrency trading reached 1,480 trillion won in the first quarter, sometimes exceeding the combined trading volume on the KOSPI and KOSDAQ stock exchanges.

An official at the Financial Services Commission told Reuters that exchanges that didn’t meet new regulations would not necessarily need to close, but they would not be able trade in the won.

“The revised law itself is aimed at preventing illegal money laundering activities. There are laws on user protection and market stability pending and they should be able to further address issues with (cryptocurrency exchange) users,” he said.

Many investors, meanwhile, are determined to “hold on for dear life”, or “HODL“ as it’s know in the cryptocurrency community.

Lee Jai-kyung, 27, who invested 40 million won ($35,156.18) in cryptocurrencies, says he has lost 56% on his holdings but has no plan on cutting his losses.

“I’m going to leave my coin investment as it is because I’ve lost so much already there’s no point in withdrawing now,” Lee said. “More than that, I’ll be holding on to it because I believe that there will be another price surge later this year.”

($1 = 1,143.7300 won)