Korean-language business daily Financial News reported Wednesday that major overseas cryptocurrency exchanges are entering the Korean market, attracted by Koreans’ well-known love of cryptocurrency and the lack of official regulation.
Ironically, this comes at a time when local cryptocurrency exchanges are having trouble expanding overseas because the government is blocking overseas remittances because of worries about money laundering.
This is leading some local cryptocurrency exchanges to complain of reverse discrimination, that the government has left the door open for overseas exchanges to operate in Korea while strangling their efforts to expand overseas.
Here they come!
Singapore-based exchange Huobi entered the Korean market last year. Soon it will be joined by Malta-based exchange OKex and Singapore-based exchange DigiFinex.
OKex Korea will formally launch on June 18 after launching its beta service last year. In addition to a market allowing transactions in Korean won, it is planning to allow transactions in Bitcoin, Ethereum and Tether.
OKex is big – according to CoinMarketCap, it’s the second biggest exchange in the world in terms of volume.
And it’s about to be joined by the fifth biggest (now third biggest), with DigiFinex scheduled to offer service at its separate Korea-based exchange from the end of the month at the earliest. Though DigitFinex Korea is currently preparing to found its legal entity and open its exchange, it began pre-registering members on June 10.
DigiFinex Korea accounts are linked to DigitFinex, which boasts over 2 million members, so all you need is a single login. Users can use Bitcoin, Ethereum, Tether and Korean won markets to trade a variety of cryptocurrencies.
BW.com, another major global exchange that has been actively collaborating with Korean projects as of late, is also reportedly considering opening a Korea branch.
Industry insiders say the reason global exchanges are coming to Korea is because the country has few regulations regarding founding exchanges.
In the nations of Southeast Asia, the United States and Japan, authorities have crafted or are crafting regulations and guidelines regarding the operation of cryptocurrency exchanges in those countries.
In Korea, however, there are no official regulations regarding exchanges, so overseas exchanges needn’t go through procedures such as seeking government approval.
Instead of using real-name virtual accounts with local banks, overseas exchanges start off using so-called “hive accounts” (as they’re dubbed in Korea) which allow users to deposit money into a big corporate account unattached to the depositors’ real names. Though these “hive accounts” are vulnerable to illicit activities such as hacking and illegal activities, they face little regulation. OKex Korea and DigiFinex Korea, too, plan to use hive accounts.
Local Korean exchanges, meanwhile, are fighting an uphill battle when trying to expand overseas.
Firstly, they need to satisfy each nation’s regulations when starting overseas branches.
Even if they do so, though, they can’t send the money they need for local marketing and operations because Korea’s financial authorities block companies running cryptocurrency exchanges from remitting money overseas.
One industry insider complained to the Financial News that the cryptocurrency exchange industry was one of many industries in which no Korean companies could be found at the top. There was a time when exchanges like UPbit and Bithumb were world beaters, he said, but threats by the government, the suspension of issuing real-name virtual accounts and the blocking of overseas remittances have cost those exchanges the chance to become global leaders.
Another industry insider complained that the government was failing to establish guidelines in the face of a flood of overseas exchanges entering Korea, abetting the creation of a jumbled market. Local exchanges, meanwhile, were facing pressure from two sides, opening up their own homes to competition while being stopped from expanding overseas.
The Iconist should note that it’s not just overseas exchanges that use “hive accounts.” Most local exchanges have been forced to use them, too, notes the Korean-language Business Post.
Though four major Korean cryptocurrency exchanges signed deals with local banks to create real-name virtual accounts, those banks stopped issuing said accounts last year after the government issued guidelines to block money laundering. And for small- and medium-sized exchanges, hive accounts have been the only option, practically speaking.
As the Business Post notes, this is a problem, especially as interest in cryptocurrency rekindles. If something happens to a hive account – and given the vulnerabilities of said accounts and the vulnerabilities of Korean exchanges in general, “something” is always a possibility – there are no legal protections for investors.
There’s a bill in the National Assembly that, if passed, could allow authorities to forcibly confiscate hive accounts, but the cryptocurrency exchange industry thinks this will take quite some time to pass. An exchange insider told the Business Post that before enacting laws, what could be needed are separate guidelines to manage hive accounts.