South Korean regulators are set to shut down dozens of cryptocurrency exchanges in the coming days, though the impact is likely to be felt only on the margins of the industry given the low volumes involved.
About 35 trading platforms -- out of a total of 63 -- have not received the certification required to register with the Financial Intelligence Unit, according to the government. Since the certification process takes three to six months and the deadline is Sept. 24, it will be “virtually impossible” for exchanges that haven’t already won approval to get it in time, the regulator said.
However, the regulatory move is expected to affect only a small portion of the country’s crypto activity. Korea’s four biggest exchanges, including Upbit and Bithumb, have all registered as legal trading platforms -- and they account for about 97% of trading volume in the country, according to ruling party lawmaker Noh Woong-rae last week.
Virtual currencies dropped after Bithumb, the second South Korean exchange in as many weeks, said it was the victim of a theft, renewing concerns about the safety of digital-asset trading venues.
Investors who bought “Kimchi coins” -- cryptos that primarily developed and traded by Koreans that tend to be smaller and less liquid than many -- are likely to be the most affected. Platforms that will fail to meet the regulatory requirements must notify their clients of possible closure by Friday.
The Korean won is the sixth-most-used fiat currency in the world to trade major cryptocurrencies as of Wednesday, CoinMarketCap data show, and over the years a “Kimchi premium” has often existed where Bitcoin costs more than elsewhere in the world due to high demand.
The coins listed only on the small exchanges being forced to shut down generally lack intrinsic value and serve little purpose, which could make it difficult to calculate their fair value or estimate the scope of the overall impact, according to market watchers. The shutdowns could cause 3 trillion won ($3.5 billion) of damage to investors in the so-called Kimchi coins, according to an estimate by chair of the Korea Society of Fintech Blockchain last week.
