- China declares war on crypto-currencies
- In 2017 — China rattles, Korea flourishes
- Korean government passes a critical bill
- Dejavu 2017 — Flight to safety from regulatory risk
China declares war on crypto-currencies once again
Following the recent statement by President Xi Jinping, to seize the opportunity to adopt blockchain last month, it’s been reported that the Shanghai head office of the PBOC (People’s Bank of China) has issued a regulatory update about tightening regulatory control over cryptocurrencies and crypto exchanges that allow the Chinese to trade on them. We see this move as a step for the Chinese government to clean up the messy and grey industry before implementing the upcoming law which will be used by Chinese officials to govern their national CBDC (Central Bank Digital Currency).
Following the strict guidelines, authorities in Shenzhen have identified a total of 39 exchanges falling foul of China’s cryptocurrency trading ban. Later evidence pointed out that Chinese government shut down 173 exchanges and token issuers. It is reported that the action will focus on three activities:
First, providing virtual currency trading services or opening virtual currency trading places in China;
Second, providing service channels for overseas virtual currency trading places, including services such as drainage and agency trading;
Third, sell tokens in various names, raise funds for investors or virtual currencies such as Bitcoin and Ethereum.
In 2017 — China rattles, Korea flourishes
In 2017, the Chinese government took steps to crack down on the crypto market after a massive surge in Bitcoin prices and high participation from retail investors.
By limiting Yuan deposit and withdrawals, followed by bans on ICO, IEO, and other measures preventing private funding using cryptocurrencies in September. The government sent a strong message to existing crypto-exchanges, which led to major exchanges closing down and driving major exchanges to take shelter overseas.
At the same time, this move triggered an exodus of Chinese investors in to Korean crypto exchanges, such as Bithumb, as they saw a staggering five times volume surge in 2017. According to Elaine Ramirez of Forbes Magazine, 2017 was the rocket year for South Korea crypto industry, as we witnessed 3 major positive events:
First, the first ICO was issued by a Korean fintech company called Blockchain OS, it finished in nine minutes in exchange for 6,900 Bitcoins. The volume of the ICO attracted a lot of attention and interest in the scene from South Koreans.
Second, South Korea was swept by Ethereum fever, leading to local prices hitting 30–50% above the global average. Increased traffic during peak trading prices regularly brought down servers at the exchanges, where the so called Kimchi Premium soared as high as 50% above global prices.
Third, large companies embraced the blockchain storm, with Samsung SDS joining the Enterprise Ethereum Alliance in May and Kakao Corp, acquired fintech startup Dunamu to launch its own crypto exchange Upbit. The biggest deal was gaming giant Nexon acquiring Korbit, the country’s first Bitcoin exchange.
Korean government passes a critical bill
In November 2019, the National Assembly’s Amendment Committee on Parliamentary Affairs passed a legal amendment to the still-in-development Special Financial Transactions Information Act to force virtual asset exchanges to register with the Financial Services Commission (FSC).
The Special Financial Transactions Information Act would ultimately mean that the crypto-related industry will move out of a regulatory gray area and enter the system as regulated financial institutions like banks. “It is expected to be the first step in the development of consumer protection and a stable market,” according to Jae-Jin Kim, secretary general of the Korea Blockchain Association.
With such direction and guidelines by the government, we predict the South Korean crypto industry to flourish and develop into mainstream adoption of cryptocurrencies. This will attract larger foreign and traditional financial institutions’ investments into blockchain industry and crypto exchanges. Igniting a golden age of blockchain and cryptocurrencies in South Korea.
Deja vu 2017? Flight to safety from regulatory risk
Given the backdrop of the current negative business landscape such as the ongoing trade war with the US and uncertainties in Hong Kong, Ga Young Kim of Paxnet News asserted that China is looking to launch CDBC within a year timeframe to compete with the US Dollar as the fiat currency for global trading and investing. Therefore, we foresee the Chinese government’s
crackdown on unlicensed crypto-exchanges to intensify and it will dampen the retail investors’ concerns of their asset’s security. According to the Cointelegraph, 92% of institutional wallets are stored in exchanges. Which leaves the risk of government seizure in wallets, since most of the major Chinese crypto-exchanges are domiciled outside of China, but their development team is still in China, which means the wallets are managed by the development team.
Although it’s hard to say if the rocket year of 2017 will repeat once again in Korea, it’s hard to ignore the facts about the flight to safety by the Chinese retail investors from regulatory risk in China.
We predict that such phenomenon will further escalate in 2020 and lead to a greater exodus of crypto volume from China to Korea as the two governments move in opposite direction of regulating and fostering the blockchain and cryptocurrency industry.
