South Korean Government Holds Emergency Meeting to Discuss Bitcoin
The South Korean government held an emergency meeting to evaluate the state of the local cryptocurrency exchange market and trading of digital currencies.
A South Korean central bank official stated that the government plans to introduce various regulatory measures on Friday, December 13, with urgency given the recent rise in demand for bitcoin and other cryptocurrencies from the traditional finance sector.
Immediately after the announcement from the South Korean central bank official, the stocks of cryptocurrency exchange holding companies reportedly slumped, in the range of 4 to 8 percent.
Regulations Necessary
As of current, the South Korean cryptocurrency and bitcoin markets have no regulatory frameworks and policies in place, and exchanges have complete freedom over the market.
The South Korean government has become increasingly concerned with cryptocurrency-related ponzi schemes in the local market. Tens of thousands of investors have fallen victim to cryptocurrency-related scams over the past year. One scam project, in particular, stole $200 million from its victims by marketing itself as a bitcoin consultancy firm and stealing funds from its victims.
In the South Korean market, the vast majority of investors move through word of mouth communication. Tony Lyu, the co-founder and CEO of Korbit, the $140 million cryptocurrency exchange, stated:
“Word just spreads really fast in Korea. Once people are invested, they want everyone else to join the party. There’s been this huge, almost a community movement around this.”
One major issue with the current structure of the South Korean bitcoin and cryptocurrency exchange markets is that many investors are trying to invest in cryptocurrencies through unregulated over-the-counter (OTC) markets and direct contacts. As such, investors increasingly fall victim for ponzi schemes and obvious scams.
Most investors in well-regulated and structured markets like the US and Japan are well aware that it is not possible for consultancy firms and exchanges to guarantee a certain profit margin and a monthly payout. Hence, any exchange or project offering to pay out a percentage profit margin on a regular basis can be considered as a ponzi scheme or scam.
In the South Korean market, many investors are falling for obvious ponzi schemes, and the South Korean government is beginning to solve the problem by providing exchanges with licenses to operate as strictly regulated financial service providers. Through the recognition and endorsement of cryptocurrency exchanges, the South Korean government expects more investors to invest on regulated trading platforms.
Teenager Scammer Arrested
Contrary to other markets, the South Korean cryptocurrency market is being overflowed with scams. Recently, the South Korean bitcoin market outraged over Bitcoin Diamond, which was marketed as an upcoming hard fork.
Two months since its launch, it was discovered that Bitcoin Diamond was a scam created by a South Korean high school student, whose plan was to short the bitcoin market by decreasing the price of bitcoin through a hard fork announcement.
Within hours after the discovery of the Bitcoin Diamond scam, South Korean police arrested the teenager, who pleaded guilty to fraud.
With fraudulent operations, ponzi schemes, and scams becoming a major issue for the South Korean cryptocurrency market, in the upcoming weeks, the South Korean government will likely roll out regulations to better protect investors.