Progression Toward Regulated Crypto Trading in South Korea

The issue of fraudulent trading transactions among crypto trading firms has been rising. The Capital Market Act failed to address this issue as it lacked provisions to license crypto trading companies. These companies did not have the necessary investment information to fully understand trading dynamics, allowing traders to manipulate pricing for their benefit. However, this situation appears to be changing after the Luna Shock. The new crypto regulations in South Korea will enforce harsher penalties compared to the existing Capital Market Act.

A Year of Licensing Research

Last year, the National Assembly tasked the FSC with researching cryptocurrency licensing. This led to the Comparative Analysis of the Property Industry Act, which consolidates 13 bills aimed at establishing a legal framework for crypto-trading licenses. The central legislation for this purpose is the Virtual Property Industry Act.

There have been multiple reports indicating that Stablecoins have been part of the FSC’s agenda for some time. The National Assembly’s involvement, along with the problems surrounding LUNA, served as catalysts. To address this in the long term, plans are in place to regulate Stablecoins, including restrictions on the daily amount an issuer can mint. The proposal also suggests requiring collateral to mitigate risks in crypto trading, especially for investors.

After Yoon Seok-Yeol became South Korea’s president, cryptocurrency trading became part of his policy. On May 2nd, he introduced a bill to the National Assembly proposing that crypto investments in South Korea should not be subject to taxes. The Comparative Analysis of the Property Industry Act is part of the regulatory framework he intends to use to embed cryptocurrency trading into the country’s legal system.

Ključna područja fokusa

The primary goal of this cryptocurrency licensing legislation is to protect South Koreans from being manipulated by crypto traders. Any intentional misconduct, such as manipulating trading data, will face severe penalties. Examples of such manipulation include inflating cryptocurrency prices, falsifying orders, and insider dumping. However, some cryptocurrencies experience irregular market price fluctuations, and the government aims to ensure these fluctuations are not the result of deliberate actions.

As part of the licensing process, traders will be required to submit a trading White Paper, which will serve as proof of concept and a security declaration. This document will detail the coin’s version and any amendments if necessary. The goal is to protect investors from losing their investments, as happened with Luna.

The proposal also aims to improve the crypto trading system by introducing vetting and accreditation processes. The South Korean banking system is central to the crypto market, as funds deposited there are used for trading. Money is a value measure that needs regulatory protection to prevent inflation. The proposal seeks to raise barriers to entry into the market to mitigate the risks associated with crypto trading.

These proposals aim to create a more organized trading environment, reduce risks, and promote investor-centric crypto trading. With the valuation of crypto issuers verified, the government can regulate the market and protect citizens from inflated prices. Penalties for violating these proposed regulations include license suspension, fines, imprisonment, and asset confiscation. In case of damages, the law will hold the crypto issuer accountable for the costs.

Recent Events Leading to Crypto Trading Licenses

The conversation around crypto trading licenses coincides with the decline in the value of many cryptocurrencies. For example, Luna, a cryptocurrency in the Terra Network, has seen a dramatic devaluation, currently trading at around $0.1. Despite a formula to stabilize UST at $1 during low-value periods, this has severely impacted its development. However, some of the most devalued cryptocurrencies lacked backing assets to prevent their value from collapsing.

Meanwhile, other countries are racing to establish cryptocurrency as an official currency. One notable example is El Salvador, which hosted over 40 nations to discuss the adoption of Bitcoin as a medium of exchange. The event brought together central banks and financial regulators to discuss how Bitcoin can help provide financial services to the unbanked population.

CryptoChipy will continue to monitor the growth of cryptocurrencies, particularly Bitcoin, and its potential impact on South Korea’s financial sector. Licensing crypto traders is an important first step in making digital currencies more widely accepted. As more nations move towards regulating cryptocurrency trading, its influence on global markets and economies is expected to grow significantly.