27 Sep 2021 · 3 min read

South Korean Crypto Sector Still Reeling from Last Week’s Carnage

Source: Adobe/Raphaël Bourgeois

The fallout from the mass crypto exchange closures exacted in the past few days in South Korea is likely to rumble on for days if not weeks – although regulators are trying to put a gloss on the situation by claiming “damage” to the exchanges’ customers will be “limited.”

Per reports from the Segye Ilbo, as well as Chosun and the Kookmin Ilbo, as many as 37 crypto trading platforms appear to have shut down on or before September 24, although estimates on the exact figure vary.

The mass closure took place last week after regulatory bodies enforced a new system whereby all exchanges and wallet providers – both domestic and international – must apply for operating licenses in order to continue doing business. In order to do so, they were told to adhere to a large list of protocols, the most notable of which were information security management system (ISMS) certification and real name-authenticated banking contracts.

While larger platforms successfully gained ISMS approval, banking deals proved elusive, with negotiations with banks failing for all but the “big four” exchanges: Korbit, Bithumb, Upbit, and Coinone. ISMS-only platforms have been allowed to apply for crypto-to-crypto trading permits, but only exchanges with banking deals will be allowed to offer fiat KRW on/off ramps and fiat pairings.

A reported 29 exchanges and 13 wallet providers have applied for crypto-only trading permits, with many adding bitcoin (BTC) pairings for all of their altcoin offerings. 

A communications manager at one of the ISMS-only exchanges who wished to remain nameless told Cryptonews.com:

“Ultimately, the people who really suffer here will be the customers. Innovation in the industry has been stifled, the barrier to entry has been set impossibly high for would-be entrepreneurs. And a wide choice of exchange options has been narrowed down to just four.” 

Critics in the media and the political world have warned that a de facto exchange “oligopoly” is now emerging, with the big four now allowed to move unchecked in the space. They pointed out that the big four can now effectively make coordinated decisions on factors such as fees, as well as token listings and delistings.

In a separate report, the Segye Ilbo explained that Financial Intelligence Unit (FIU) data revealed that the market share of the 13 exchanges that applied for ISMS certification, but were not successful, steadily declined and fell to less than 0.1% in the latter part of last week – with most customers apparently noting the writing on the wall.

The FIU reported that the fiat value of deposits at these platforms was over USD 221m in April. By last week, the figure stood at around USD 3.6m.

The FIU was quoted as stating,

“It seems that the possibility of damage to customers has been greatly reduced. We expect that the disruption caused by business closures will be limited.”

Meanwhile, the National Assembly’s Planning and Finance Committee is set to discuss its future plans for the crypto industry in the next parliamentary session. The exact nature of the committee’s agenda has not been revealed, but with exchange and wallet provider regulation now more or less complete, the even thornier issue of crypto tax is looming.

A number of private members’ bills have been tabled, all proposing the delay of the introduction next year of crypto trading profits levy of 20%. These must all be considered by relevant committees – who will decide if they what it takes to warrant a vote in the National Assembly.

Advocates have suggested compiling the bills, although political differences along party lines may derail such a plan.
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Learn more:
- South Korean Taxman to Be Granted Right to Search Crypto Tax Evaders’ Homes 
- South Korean Ruling Party Squabbles over Crypto Tax

- South Korean Police Forces to Form Dedicated Crypto Teams 
- S Korean MP Tells Gov’t: ‘Don’t Let a Crypto Monopoly Emerge’ 

- Think Tank Tells South Korean Banks: Start Offering Crypto Custody Services 
- Regulator Identifies ‘Fake’ Crypto Exchange Bank Accounts