Cryptocurrency markets around the globe are mostly driven by retail investors with minimal contribution from institutional investors. This is primarily due to the lack of regulations and safeguards that exist in financial markets like stocks and commodities. Korean citizens have had a very enthusiastic and positive outlook towards cryptocurrency trading. South Korea has maintained its position among the top nations in crypto-trading volumes. The country is home to some of the biggest crypto-exchanges like Bithumb and Upbit. One in every 3 Koreans has been involved in trading of cryptocurrencies or tokens.
However, the Financial Supervisory Service (FSS), the Korean financial regulator has had more than enough to be anxious about. YoBit, a crypto-exchange was hacked twice last year and filed for bankruptcy. 2018 has seen Bithumb and Coinrail, two large Korean exchanges being hacked and each losing $30 million. Some of the exchanges have been suspected of unethical practices.
Softening Stance of Regulators
The primary concern of the FSS has been the protection of investors’ interests. The Korean government had imposed a ban on the launch of ICOs in September 2017. However, it stopped short of preventing the citizens from participating in the ICOs. In December last year, an announcement to ban cryptocurrency trading resulted in massive protests from the investor community and close to 200,000 citizens signed a petition against any such move. The government had to step back in the wake of the protests.
While the authorities want to safeguard the investors, fears of being left behind in the race for innovation is bothering them. They are witnessing the growth in the blockchain eco-system in neighboring countries like the Philippines, Thailand, and Singapore. Due to the ICO ban, capital has been flowing out of the nation as Korean blockchain entrepreneurs have been setting shop elsewhere.
Working out a Win-Win Formula
Regulators are exploring a middle path. There is an expectation that the government may reverse the ICO ban towards the end of this year. The National Assembly, earlier in May this year, had officially proposed for the government to lift the prohibition on initial coin offerings. However, there has been no word from the government on such a move, so far. There are some pro-blockchain voices within the government like Won Hee-Ryong, governor of Jeju province who has been bullish in trying to attract foreign direct investments. He aspires to make the island off the southern South Korean coast an ICO hub.
According to Samuel Yim of Kim & Chang, the government is observing the path that countries like the US and Japan take. In his words:
We are entering the fourth quarter, and mid-next year seems much more feasible, as we expect the space to normalize further by then.
South Korean regulators are walking a tightrope and trying to find a win-win formula through a well-balanced regulatory framework that is attractive enough for entrepreneurs and at the same time safeguards the interests of the investors.
Do you think South Korean regulators will lift the ICO ban by the end of this year? What will be the impact of such a move? Let us know in the comments below.