The cryptocurrency industry may take another blow this month. The deadline for South Korean cryptocurrency exchanges to comply with new regulations is fast approaching. Korean exchanges must register for a license with the Financial Services Commission (FSC) before September 24.
However, it is expected that as many as two thirds of all Korean crypto exchanges, or 40 out of 60, will not do this and therefore have to close their doors. Industry insiders reported this to the Financial Times on Sept. 13:
South Korea crypto crackdown to wipe $2.6bn from ‘kimchi coins’ https://t.co/6reFKbOc6K
— Financial Times (@FT) September 12, 2021
South Korean bitcoin (BTC) exchanges have been required to apply for a license from the FSC, called the Virtual Asset Service Provider (VASP), since March 25. They have until September 24 to receive this, after which they are no longer allowed to operate without a permit.
Many crypto companies have complained about the strict new regulations in recent months, but that seems to have made little difference. The FSC has already closed 11 crypto exchanges this summer, forcing several exchanges to remove a string of altcoins. The FSC chairman already warned in April that all exchanges might have to close, when no one had registered yet.
The regulator claims that there is a high demand among consumers for more protection, but many people do not find that credible. Currently, only four exchanges are responsible for about 90% of all crypto trading in the country. The smaller exchanges say this regulation eliminates all competition and especially affects the big four, Upbit, Bithumb, Coinone, and Korbit.
Kimchi Coins
In addition, Kim Hyoung-joong, principal investigator of the crypto department of the University of Korea, expects 42 “kimchi coins” to collapse and $2.6 billion will be lost. Kimchi coins is a common name for small Korean altcoins. Many of these altcoins are only available on smaller Korean exchanges and there are fears of some kind bank run around the deadline.
Altcoins are responsible for 90% of all crypto trading in South Korea, which is why the FSC advises these small exchanges to warn their customers before September 17th. However, this does not appear to be a priority for companies that may be forced to close their doors.