Seoul Delivers Crypto Exchanges Funding Blow
South Korean cryptocurrency exchanges have been hit with more bad news after the central government said it would change such companies’ legal financial status – making it almost impossible for domestic venture bodies to invest in the country’s exchanges.
Media outlet Money Today states that government ministries have designated cryptocurrency exchanges as de facto “gambling”-related businesses. Under the country’s strict anti-gambling legislation, legally recognized venture companies are forbidden from investing in any company whose business remit includes activities connected with gambling or market speculation.
Money Today quotes a Ministry of Finance official as saying, “We have no plans to regulate the development of blockchain technology. However, the official stated that exchanges’ activities could be linked to possible instances of “gambling,” “speculation” and “market overheating” – forcing the government to act.
The legislation hasn’t been put in force yet. However, the government has a majority in the National Assembly, which makes it almost certain that the recent idea will be approved.
The news will come as a bitter pill for a number of exchanges, who have relied heavily on venture capital companies for much of their funding. Per industry figures, some 28 of South Korea’s 700 registered venture capital investment bodies have invested a total of USD 368 million in market-leading exchanges such as Upbit, Bithumb and Korbit. This figure includes indirect government investments made through mutual funds – amounting a total of USD 33 million.
The media outlet also quotes a financial expert as saying that the government’s move means South Korean venture capital companies will now need to obtain special permission from a judiciary body if they wanted to invest in a domestic exchange platform.
The news will also compound the misery for South Korean exchanges, who recently learned that Seoul is also set to rescind the sort of tax breaks it usually offers to small- and medium-sized companies. That move sparked outrage among industry groups, who accused the government of “cutting off its nose to spite its face.”