FTC puts crypto exchanges under regulatory scrutiny

The logo of Upbit is seen in front of Dunamu headquarters in Seoul, in this undated file photo. Dunamu is the operator of the largest crypto exchange here. Yonhap

The Fair Trade Commission (FTC) is showing signs of tightening oversight on major cryptocurrency exchanges amid growing calls to hold them to the same regulatory standards faced by legacy financial firms.

The latest in a series of investigations into the exchanges came on Wednesday, when the authority sent investigators to the headquarters of Bithumb, the second-largest crypto exchange here.

The exchange operator is suspected of having engaged in false advertising regarding the scale of its liquidity. In March and April last year, Bithumb claimed in multiple press releases that its liquidity was the highest among local crypto exchanges.

According to crypto data aggregator CoinGecko, however, Upbit maintained the top spot in the local market with a 68 percent share of cryptocurrency trading volume last year. Bithumb came in second with 28 percent.

Given the huge gap with the exchange market leader, the FTC is now looking into whether Bithumb has violated a local advertisement act. According to the watchdog, any firms that post deceptive or exaggerated ads are subject to sanctions for undue business practices.

Bithumb officials declined to comment on the ongoing investigation.

Dunamu, the operator of Upbit, is also under investigation by the FTC. The company, which runs an unlisted stock transaction platform, allegedly prohibited rival platforms from trading the firm’s unlisted stocks. Transactions of the firm’s stocks are available only through Dunamu’s platform, Stockplus.

The logo of Bithumb, the second-largest crypto exchange here / Courtesy of Bithumb

However, a local fair trade act stipulates that firms should not refuse transactions unfairly.

An official from Dunamu also declined to specify details of the investigation.

The FTC investigation of the two major crypto exchange operators reflects the government’s attempt to step up regulations on these quasifinancial companies. For now, crypto exchanges here are not legally designated as financial institutions, which has allowed them to evade stricter regulations faced by those entities.

The steep earnings growth of the major exchanges has also rekindled calls to regulate them more strictly under an institutional framework.

According to earnings data from Dunamu, it chalked up a net profit of 239 billion won ($163 million) in the third quarter of last year, up 308 percent from a year earlier. Bithumb’s net profit also skyrocketed to 105.4 billion won, up 3,285 percent during the same period.

Despite the authority’s regulatory stance on crypto exchanges, some experts argued that Korea should follow the United States in approaching crypto regulations from a long-term viewpoint.

“In the U.S., some big tech companies issue stablecoins, and the country is generally open to embracing the new financial paradigm driven by cryptocurrencies,” said Kim Dae-jong, a professor of business administration at Sejong University. “Korea should pursue a longer-term approach rather than sticking to the long-held regulation-first stance.”