Korea to rationalize cryptocurrency market

Binance's notification of the suspension of its Korean service / Screen capture from Binance's homepage

By Lee Min-hyung

Korea's cryptocurrency market is undergoing a major reorganization to shift focus onto stablecoins and some large-cap cryptocurrencies ― such as Bitcoin and Ethereum ― amid the introduction of toughened financial regulations.

Under the Special Financial Transaction Information Act, which will take effect Sept. 24, cryptocurrency exchanges will have to report Korean investors' activities on their platforms to the Financial Services Commission (FSC).

As it is unfeasible for overseas crypto exchange operators to meet the regulatory guidelines from the Korean overseer, a group of major foreign exchanges are on track to shut down their businesses here ahead of the introduction of the act.

Binance, the world's largest crypto exchange, was the first major overseas exchange to announce its decision to suspend part of its business here. The exchange notified Korean investors Friday that it would discontinue its trading services for local users here. Binance noted it would “proactively comply with local regulations” by discontinuing services here ― such as Korean won payment options, trading pairs and Korean language website support.

Binance's decision to leave Korea amid the toughening regulatory hurdles here is expected to speed up the reshuffle of the domestic crypto market, causing minor cryptocurrencies to continue to lose ground, while at the same time enhancing the foothold of stablecoins.

The Bank of Korea (BOK) also backed up this argument noting that stablecoins ― having valuations that do not fluctuate much, as their prices are linked to a fixed asset or fiat currency such as the U.S. dollar ― would expand their presence.

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“Encrypted assets have wide price volatility, so their role as a payment method is very limited,” the central bank said in a recent report. “They also have structural limitations for growth as governments around the world are moving to strengthen regulations on them amid fears that the crypto assets can be linked to illegal acts ― such as tax evasion, money laundering or terrorist financing.”

But this is not the case for stablecoins, which are designed to maintain their inherent value by linking their valuation with legal currencies, according to the central bank.

“Stablecoins can be widely used for various purposes ― such as establishing a crypto ecosystem and cross-border remittance,” it said.

Binance's recent decision will come as a boon for Korea's major crypto exchanges, as they are likely to gain more attention from local investors amid an unceasing cryptocurrency investment boom here.

Korea's top four crypto exchanges, including Bithumb and Coinone, have already signed partnerships with local banks to continue stable operations even after the regulation takes effect next month.

Despite the regulation, the total crypto trading volume will remain solid in the foreseeable future unless the mass liquidity that flowed into the market following the pandemic shock is retrieved.

Some minor coins are also expected to be delisted after the act is enforced, as operators selling such risky coins will have to obtain permission to do so from the watchdog.