Wednesday, January 31, 2018

South Korea Will Not Ban Crypto Exchanges

Several weeks ago word hit the cyber street that South Korean authorities were preparing to ban local crypto exchanges, similar to what China's government did. As South Korea has come to represent a large share of global crypto trading, this hammered the prices of several cryptos, chiefly Bitcoin.

A few hours ago, the South Korean Finance Ministry clarified their position: crypto trading is fine, anonymous accounts and foreign currency exchange in violation of national regulation is not.

The anonymous accounts portion of their gripe is easily understood as to what it is. For combating illicit activities, virtually no governing authority allows anonymous ownership of financial accounts (regulations banning anonymous accounts went into effect in South Korea yesterday).

The illegal foreign currency exchange part is a bit more tricky, but easy enough to explain. Basically, South Korea maintains tight controls on "capital outflows" from the country. Relatively small amounts sent overseas trigger reporting requirements (as the first article I've linked to above states, it's $3000 USD equivalent). What people were doing was buying cryptos locally in South Korean won (KRW) and sending it to a partner located somewhere overseas. This partner would then sell the cryptos for the local currency there and distribute the proceeds into local accounts on their behalf. Ordinarily, this kind of activity must be carried out by licensed FOREX entities in South Korea. Because this arrangement was not carried out in KRW, it skirted the foreign exchange licensing and reporting requirements.

The intervention of South Korea's Finance Ministry is thus understandable, and expected. Fortunately the assumption that they would follow China's lead and effectively ban large-scale cryptocurrency trading has proven false, as they appear to be limiting their enforcement actions to those things that are actually violations of South Korean law. So once again, rumor traveled faster than fact, and in such a tiny global market as cryptos, it had a huge effect on the price. This news is only a few hours old, so as word spreads about it, perhaps we'll see some favorable movement in the market cap of cryptos generally as a result.

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