South Korean government plans to legalize Bitcoin trading and crack down on fraudulent exchanges

The South Korean government and local financial regulators have warned investors to be wary of fake cryptocurrency and bitcoin exchanges.

Fraudulent exchanges

On December 13, the South Korean government and its cryptocurrency task force, the Ministry of Justice’s Financial Services Commission, the Fair Trade Commission, and the Financial Supervisory Commission held an emergency meeting to discuss the state of the South Korean cryptocurrency market and draft regulations for cryptocurrency businesses and investors.

Two of the four ordinances drafted by the South Korean government during the emergency session are:

1. Foreigners and underage investors are not allowed to trade cryptocurrencies;

2. Properly regulate cryptocurrency exchanges as legitimate financial service providers;

However, due to the rapid growth of fraudulent cryptocurrency exchanges, platforms, and activities, the South Korean government urgently moved to regulate cryptocurrency exchanges and crack down on fraudulent operations.

Last week, several fake cryptocurrency exchanges were exposed by the local Bitcoin community and financial authorities in South Korea. One of the fake exchanges, BitKRX, falsely claimed to be a subsidiary of Korea Exchange (KRX), the largest financial trading platform in South Korea.

The BitKRX exchange uses the name of KRX to lure users into the platform.

Chosun, one of the largest mainstream media in South Korea, reported that local financial and law enforcement agencies have begun to crack down on fraudulent cryptocurrency exchanges. Specifically, local financial regulators revealed that several unregulated exchanges in South Korea used the brands of leading financial institutions to illegally attract users.

One of the Korean Bitcoin community members told Chosun:

“Some small groups of individuals do not have the qualifications and sufficient experience to operate large-scale cryptocurrency trading platforms with high traffic. As a result, traders are unable to execute buy and sell orders correctly and in a timely manner, which has caused significant losses and distress to investors. Strict supervision will further stabilize the local cryptocurrency market.”

Active supervision

Earlier this week, South Korea’s largest cryptocurrency exchange Bithumb said that proper regulation would nourish the cryptocurrency market and promote its exponential growth. Bithumb said:

“The right set of regulations will foster the cryptocurrency market, and we welcome that.”

For large cryptocurrency exchanges such as Bithumb, Korbit and Coinone, regulation is necessary because a significant portion of investors in the Korean cryptocurrency market have fallen victim to Ponzi schemes.

This month, local law enforcement in South Korea cracked down on a $200 million cryptocurrency cloud mining Ponzi scheme, and it is reported that the police have arrested several people involved in the case.

According to data provided by CryptoCompare, a cryptocurrency market data provider, South Korea's cryptocurrency market exchanges account for 4.6% of the global cryptocurrency exchange market, ranking behind the United States, Japan and Europe.