According to industry experts, the closure of most of the small exchanges in South Korea due to the new regulation could lead to the destruction of forty-two “Kimchi cryptoassets.”
According to the Financial Times, $ 2.6 billion worth of crypto assets could be destroyed after the September 24 deadline for registering cryptocurrency exchanges in South Korea. On March 25, 2021, amendments to the Financial Institutions Reporting Act (FTRA) came into force, which require exchanges to obtain a special license to comply with the rules for combating money laundering (AML) and the separation of their own and client assets, with the mandatory maintenance of accounts in the country’s banks …
The Financial Services Commission (FSC) has advised exchanges that fail to meet regulatory obligations to inform their clients of a potential closure by September 17. According to the publication, about two-thirds or 40 out of 60 exchanges have not yet been registered with the regulator, and experts believe that this may provoke a scenario of “mass withdrawal of deposits” from the sites.
“Closer to the deadline for registering cryptocurrency exchanges with the regulator, we expect a massive withdrawal of deposits from the platforms, as investors will face difficulties in cashing out their holdings of altcoins, which are listed only on small exchanges. I wonder if regulators can deal with the side effects, ”said Lee Chul-yi, CEO of Foblgate.
The Financial Times cites industry data and notes that approximately 90% of South Korean cryptocurrency trading is conducted using altcoins. Some of them are called “Kimchi coins” – crypto assets mainly developed by Koreans and listed only on local exchanges. Kim Hyoung-joong, head of the Cryptocurrency Research Center of Korea University, estimates that about forty-two “Kimchi coins” will disappear due to the closure of exchanges.
Cho Yeon-haeng, President of the Korean Federation of Financial Consumers, said he “expects huge losses for investors” as trading on exchanges will be suspended and assets frozen. Many of the smaller exchanges are unlikely to offer compensation to customers as they prepare to close, he said.
Recently, Bithumb, one of the largest exchanges in South Korea, announced that it would stop serving foreign nationals who have not verified their identity with a local mobile phone number. At the end of August, the Upbit exchange became the first cryptocurrency exchange to register with the South Korean regulator in accordance with the new requirements.
