The financial and pop-cultural roar that has made the Bitcoin network more popular than ever before in the Western world is nothing compared to Bitcoin's cultural boom in South Korea.
The country is home to some of the world’s most prominent BTC exchanges (including Bithumb, which was ranked as the largest exchange in the world at the time of writing). It has been estimated that South Korea is solely responsible for 20 percent of all Bitcoin trading volume in the world.
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The recent rise of Bitcoin to levels over $17,000 has prompted the BTC frenzy everywhere to explode. South Korea's trading volume is so high that traders are paying $2,500 for BTC over the global average in what has been dubbed the 'kim-chi premium'.
As a result, South Korea has made some recent decisions to further regulate cryptocurrency trading within its borders.
Despite the fact that some voices in the cryptosphere are crying out that the new regulations represent the death knell of BTC and all its friends, others recognize the regulations as a positive thing for the long-term growth and integration of cryptocurrency into the mainstream world of fintech and investing.
Just as pruning can be necessary for the healthy growth of a tree, “a right set of regulations will rather nurture the (virtual currency) market, and we would welcome that,” Bithumb representatives told Reuters.
Indeed, it has been speculated that the price of BTC will not be drastically affected by the regulations, even on a short-term basis. Park Non-Sun told CNBC that since penalties for not adhering to the regulations have not yet been determined, South Korea’s 14 cryptocurrency exchanges “can always decide not to follow.”
He added: "The measures are positive for sure in that they are actually trying to curb recent speculative investments."
South Korea’s Regulatory History: An Early ICO Ban and an “Emergency Meeting”
South Korea’s first major move against cryptocurrency was the decision to ban ICOs in September of this year following China’s sweeping wave of crypto bans that severely limited the capabilities of the Chinese cryptosphere. (Rumours have circulated that South Korea is considering reversing the ban.)
The regulations that have been proposed this week came as a result of an “emergency meeting” that the South Korean government called earlier this week to mull over the country’s relationship with cryptocurrency.
The new regulatory framework, which will reportedly be rolled out next week, seeks to require taxes on cryptocurrency investment returns in addition to preventing financial firms from "investing in or obtaining Cryptocurrencies ", according to a report from Bitcoin Magazine.
The regulations will also prevent minors from opening accounts on cryptocurrency exchanges, and will explore ways to increase KYC requirements and prevent money-laundering. As a result of the porposed KYC requirements, some South Korean banks have reportedly stopped issuing accounts necessary for the trading of cryptocurrency.
Finance Magnates reported that the South Korean government "has explicitly demanded that all banks that issue virtual bank accounts for the purpose of trading cryptos will have to verify the identity of any new account holder."
In a press release, the South Korean government expressed that the new regulatory framework is needed “to prevent a general public without expertise from suffering losses by participating in virtual currency investments that have massive fluctuations.”
Other crypto-related regulations are also reportedly underway. Preceding the meeting on December 12, The Financial Services Commission of Korea banned the offering of Bitcoin futures trading, according to a report from Business Insider. CBOE began trading Bitcoin futures last Sunday; CME will begin offering Bitcoin futures trading early next week.
Bitcoin in South Korea is a “Serious Pathological Phenomenon”
In addition to the financial risks to investors associated with Bitcoin trading, a report from Fortune said that policy creators in South Korea have been put under pressure to deter the growth of “a new tribe of traders called ‘Bitcoin zombies’”, who have presumably become addicted to the adrenaline rushes of trading the highly volatile coin.
The South Korean government’s concern about the mental health of its citizens in relation to Bitcoin is a new phenomenon in the cryptosphere. Usually, governments have only expressed interest in protecting their citizens’ financial well-being; sometimes, regulatory attitudes spring purely out of a desire to tax the profits made in trading cryptocurrency.
In November, Prime Minister Lee Nak-yeon expressed his worry that students could become involved in Bitcoin trading, calling the practice “some serious pathological phenomenon.”
Proximity to North Korea May Be Influential on Regulatory Decision-Making
It has been argued that South Korea’s regulatory stance on Bitcoin has been influenced by its proximity to North Korea and the growing concern over possible BTC or cryptocurrency-related cyber attacks from the nation. Mati Greenspan, eToro trading analyst, told Business Insider that this, in combination with the political instability in South Korea, has caused the South Korean cultural faith in government and financial institutions to fade.
"After recently going through a political meltdown and ousting the former President Park Geun-Hye, and after watching the CEO of the Samsung go to prison on corruption charges, their faith in the system is currently at a justifiable all-time low," said Greenspan.
Additionally, South Korea has been concerned that its neighbor has been using profits generated from BTC to fuel the government’s abilities to launder money and participate in other illegal financial practices, according to a CNN Money report.
The North Korean government has also reportedly been behind some attempts at hacking Bitcoin exchanges, according to independent security researcher Ashley Shen. Shen told The Express: "We've discovered that some of the APT (Advanced Persistent Threat) groups are trying to hack financial institutions like banks and Bitcoin exchanges to gain financial profit."
Shen added that the hacking groups Lazarus, Bluenoroff, and Andariel are suspected to be operations run by the North Korean government.
However, Shen’s coworker supposed in the same report that the motivation behind North Korea’s hacking attempts may not be entirely malicious, but driven by financial difficulty. “Just a few years ago the [North Korean] attacks were initiated to paralyse the society, but for some time now they've been hacking for money - so I kind of wonder if they are facing financial difficulties."
A Global Movement Towards Crypto Regulation
South Korea’s new regulations come in the context of a worldwide push to swiftly pass legislation regarding the trading and taxation of cryptocurrency. Some of the world’s governments, like those of Gibraltar and Kazakhstan, are treating the rise of cryptocurrency rather opportunistically; others, like Morocco, are cracking down hard on crypto.
Still others have remained rather ambivalent, perhaps hoping to avoid acting too fast and thus throwing the baby out with the bathwater. As the country with the largest BTC trading volume in the world, South Korea’s decisions regarding the regulation of cryptocurrency send larger shockwaves than most. We can only hope that the (mostly) rational mindset that the country has taken toward crypto regulation will continue.
