South Korea’s looming crypto exchange shutdown maelstrom looks set to come to a head this week – with yet more large exchanges announcing closures or temporary suspensions ahead of a regulatory deadline that comes into force on Friday. But there could be a silver lining, with the number of exchanges ready to apply for permits set to double.
In order to apply for operating permits, exchanges must secure real name-authenticated banking services with a domestic bank and information security management system (ISMS) certification. Some 30 platforms have secured the latter, but the former is proving a much thornier matter. Banks are extremely reluctant to do business with exchanges after being told they must absorb the risk of possible hacks, money laundering, and fraud on partner crypto exchanges’ platforms.
The nation’s four biggest exchanges (Bithumb, Upbit, Korbit, and Coinone), which already offer real-name banking services to their customers, have already submitted their applications. But the vast majority of South Korea’s 60-90 exchanges are expected to fold or temporarily suspend fiat trading as they continue to hunt for banking partners.
However, in a recent development, the Chosun Ilbo reported that a group of four trading platforms, namely Gopax, GDAC, Hanbitco, and Huobi Korea, claimed that they “will be able to register after securing a real-name bank account partnerships by the deadline on September 24.”
Regardless, other big platforms are less confident: Flybit, IBEX, Coredax, and some five others have joined the likes of Foblegate by announcing that they will only offer crypto-to-crypto trading going forward as they seek banking solutions, while the same media outlet added that other slightly smaller platforms like ChainX had recently announced they would be closing down their businesses for good.
More South Korean politicians have moved to criticize the government and the regulatory Financial Services Commission (FSC) over the “shutdown crisis.” Per Gukjae News, the pro-crypto business opposition MP Cho Myung-hee has launched a stinging attack on the government, labeling Seoul “irresponsible,” and asking “Who will be responsible for the mass closure of exchanges and the subsequent damage to their customers?”
She also urged to extend the grace period for exchanges:
“It is not too late to conduct an accurate investigation and analyze the industrial damage that will be caused by the closure of [crypto] exchanges, to listen to more voices from the sector, and take measures that will foster industrial development while protecting customers. The future cannot be regulated.”
Meanwhile, the news appears to have sparked a sharp drop in new account openings at domestic crypto exchanges. The Munhwa Ilbo reported that after a huge rise in the number of customers using the four biggest exchanges in the first quarter of the year, the number of new customers at all these exchanges “plunged by more than 90% in the second quarter.”
The same media outlet added that the amount of money that new customers were depositing in their newly created wallets was also on the decline. Except for Bithumb, which saw a 21% rise in the size of deposits from new users, the remaining three platforms saw new user deposits decline by 89-95%.