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Korean Special Information Act Law Enforcement, Points to Note for Virtual Asset Investors

3/17/2021

As the amendment bill of the Specific Financial Information Act (Special Act) that regulates virtual asset business operators is being implemented from the March 25th, attention is also focused on whether there are any points that general investors should pay attention to.

The Korean Financial Services Commission announced at a state council meeting on the 16th that the revised bill for the enforcement ordinance of the special money law was decided. The amendment to the enforcement decree specifically stipulates the matters entrusted by the decree regarding the obligation to prevent money laundering (AML) of virtual asset providers.

First of all, the scope of virtual asset providers became clear. This includes exchanges, custodial (trusted) companies, and wallet companies. This is not the case when simply providing a P2P (person-to-person) trading platform or a wallet platform without fees.

Virtual asset business operators must report to the Korean Financial Information Unit (KoFIU) and operate by September 24th, when the grace period ends. At this time, there are requirements for acceptance of the report.

In the case of exchanges, it is necessary to secure information protection management system (ISMS) certification, and to secure a real name confirmation deposit and withdrawal account from a bank to support the deposit and withdrawal service in won. The obligation to prevent money laundering, such as customer verification, reporting of suspicious transactions, and actions taken by virtual asset providers, must also be fulfilled, but violations are subject to supervision after acceptance of the report.

The factor that most affects investors in the special money law is whether the exchange continues to operate. Currently, there are only four exchanges that have received real name confirmation deposit and withdrawal accounts from banks: Bithumb, Upbit, Coinone, and Korbit. Exchanges that use a so-called honeycomb account (a corporate account of an exchange) other than a real-name account must report business with a real-name account by 24th September, the deadline for reporting.

After the filing deadline, we cannot provide KRW deposit/withdrawal service to a honeycomb account. If the KRW deposit/withdrawal is not provided, the market competitiveness is deteriorated, so some exchanges may give up reporting and fail.

Investors should be careful not to suffer damages related to this. The Korean Financial Services Commission said, "We hope that you should check the status of reporting by existing business operators (exchanges) and whether or not the business continues, and make virtual asset transactions.

One more thing to note is that the virtual asset business operator who has not received the report collects the resident registration number. The KoFIU recommends that existing virtual asset business owners perform the customer verification obligation (residence registration number verification) under the Special Act after acceptance of the report.

Therefore, when a business operator (exchange) that has not received a report collects a resident registration number, it is necessary to check the information management status of the business operator and whether the business continues.

In addition to monitoring the business continuity of virtual asset providers such as exchanges, there are points that need to be prepared in practice. Industry insiders said that investment should be avoided for virtual assets that are “only listed” on certain exchanges.

As the virtual asset market is booming in recent years, some exchanges are accelerating listing. In particular, if a promising virtual asset is listed alone, it is advantageous in terms of exchange revenue because it can secure initial transaction volume. As a result, many exchanges are promoting the brand by proposing 'single listing'.

However, with the enforcement of this special law, it has become difficult to predict whether the exchange will continue to operate. If you have a large amount of virtual assets listed on an exchange that is scheduled to close, if the exchange closes, there will be no place to trade the virtual assets. Since you cannot transfer money to other exchanges, you will in fact suffer money loss.

An official in the domestic virtual asset industry said, "After the enforcement of the Special Act, investors should pay special attention to coins listed solely on specific exchanges. It is possible that the exchange will cease to operate."

"Also During the grace period after the enforcement of the Special Act, it is recommended to look at virtual assets that are listed on various exchanges and have rich liquidity."

Korean Virtual Asset Market Volume Increased

3/7/2021

As interest in the virtual asset market, such as the surge in bitcoin this year, increased rapidly, the amount of daily virtual asset transactions in Korea exceeded 8 trillion won. This is an increase of more than eight times from the average daily transaction amount of 9,759 billion won last year.

This is at least three times more than in late 2017 and early 2018, when the domestic virtual asset trading fever blew up, and it can be interpreted as setting an unprecedented record in the domestic virtual asset investment fever in 2021.

On the 8th, the Democratic Party's Office of Representative Kim Byeong-wook surveyed the status of virtual asset transactions on the four major domestic virtual asset exchanges such as Bithumb, Upbit, Coinone, and Korbit. Virtual asset transaction amount recorded 445 trillion won. Last year, the total amount of transactions for one year was 356 trillion won, but this year, the amount of transactions for less than two months exceeded the total amount of transactions for one year last year.

According to the data on the volume of virtual asset transactions collected by Congressman Kim at each virtual asset exchange, the amount of virtual asset transactions, which had declined every year since 2018, jumped in quantum in 2021.

The total transaction value of virtual assets increased from 619 trillion won in 2017 to 936 trillion won in 2018, and then halved to 487 trillion won in 2019. The total transaction value of virtual assets, which fell to 356 trillion won the following year, soared to 445 trillion won by February this year.

The average daily trading value also showed a similar pattern. Compared to 2018, when an average of 2,565 billion won was traded per day, the average daily transaction amount this year recorded 7.94 trillion won, more than tripled in three years.

An official from a virtual asset exchange supported this by saying, "We are enjoying an unprecedented boom, with the total daily transaction value of major domestic virtual asset exchanges reaching 20 trillion won at the beginning of this year."

On the other hand, according to the results of the domestic virtual asset market monitoring results of Representative Kim's, the number of virtual asset investors this year increased from the previous year, but it was low compared to the end of 2017 to the beginning of 2018. Until February 18, there were 1.59 million members who made transactions at least once on the four major virtual asset exchanges in Korea, 450,000 fewer than 2,400,000 in 2018, and nearly 400,000 from last year's 1.2 million.

It is noteworthy how long the preference for virtual asset trading will continue in Korea.

Worst Week Ever? No, Bitcoin Will Rise Again!

3/1/2021

Last week, in foreign media dealing with the news of virtual assets, the expression “worst week” came out a lot. This is because bitcoin's decline was large, and the price of bitcoin (BTC) based on the coin market cap has fallen by more than 18% over the past week.

Considering that bitcoin has only continued to rise this year, the decline is significant. However, the term ‘healthy adjustment’ is also coming out because the news of Tesla’s bitcoin investment is much higher than the price before it was announced.

Virtual Asset Analyst Joseph Young commented on Twitter, saying, “We predict that the price of bitcoin will gradually recover.” The basis for this is first, Coinbase premium has turned to ‘+’ and second, miners have already sold a lot of bitcoins.

Coinbase is the largest virtual asset exchange in the United States, and is widely used by “whales” and institutional investors in the United States. When the buying trend of US investors is strong, there will be a 'Premium' that has a higher bitcoin price on Coinbase compared to other exchanges. Higher premiums mean that American whales are buying more bitcoins.

According to Cryptoquant, the premium, which was sometimes '-' from the 25th to the 26th, completely turned to '+' after the 27th. It means that the buying trend has started again. Cryptoquant CEO also said, “Coinbase premium has turned to '+' through Twitter. They (whales) are coming.”

Some believe that the buying trend has weakened due to the decline in Grayscale's bitcoin trust premium.

In Grayscale, a digital asset manager, there is a bitcoin trust 'GBTC'. Institutional investors who purchase GBTC have a mandatory holding period of 6 months. After 6 months, you can sell your reserves through OTC trading. Investors who buy GBTC in the OTC market can buy GBTC without a mandatory holding period. So, instead of having a mandatory holding period, you pay a premium and buy GBTC. We are accepting the current premium because we expect the price of Bitcoin to rise in the future.

However, as the premium fell below zero, there was an opinion that the demand for bitcoin decreased.

In response, Cointelegraph, a media specializing in virtual assets, analyzed that "This is because demand has shifted to Bitcoin ETF." It is an analysis that the demand of investors for bitcoin has moved to another product rather than a decline.

The Bitcoin Listed Index Fund (ETF), which began trading in Canada on the 18th (local time), raised $600 million (approximately 670 billion won) in one week of launch. It is analyzed that investors who were reluctant to invest directly in bitcoin with the launch of the ETF also started investing. Cointelegraph said, “GBTC was the preferred product when there was no bitcoin ETF.” Demand has shifted to bitcoin ETFs in part.

In the long run, the price of Bitcoin is expected to rise again.

Upbit Daily Transaction Amount Exceeded 10 Trillion Won

2/21/2021

On the 19th, the daily trading value of the Upbit (www.upbit.com) won market exceeded 10 trillion won. The most traded stock on this day was BORA, which traded over 2 trillion won in the last 24 hours, and the daily increase rate recorded 433%. Paycoin, which increased 25 times in the day before, was traded at 1.4 trillion won on Upbit that day, and plummeted 46.41%.

As the market overheated, the interest in Upbit virtual assets on the 19th also jumped by nearly 50% from the previous day. In particular, as funds were concentrated in altcoins, the Upbit Altcoin Index (UBAI) rose by more than 5% from the previous day, and the Upbit Market Index (UBMI) index, which was aggregated based on the entire market, also rose by 2%.

On this day, the top 10 virtual assets in the Upbit increase rate included a large number of domestic blockchain projects. Bora, MediBloc (MED), Sentinel Protocol (UPP), and Something (SSX) ranked in the top 5 in order, followed by MVL, Metadium, and HUNT.

On the 19th, the interest in Upbit virtual assets jumped 49.74% from the previous day.

Meanwhile, on the afternoon of the 19th, the bitcoin price is 57.8 million won, which is similar to the previous day, and Ethereum (ETH) is also showing a flat trend at 2.14 million won.

According to the data, Korean cryptocurrency market size is growing rapidly now.

Korean Cryptocurrency Exchange Listing Fraud Rises, Bithumb said "will respond strongly"

2/14/2021

Bithumb (www.bithumb.com), a virtual asset exchange, is aggressively responding to illegal listed brokers.

On the 9th February, Bithumb announced that it will strongly respond to illegal brokers who pretend to be exchanges and steal high listing fees. This is because brokers who are acting as bait for listing by impersonating Bithumb executives and employees have recently tried to gain attention.

Bithumb said that it is calling particular attention to the blockchain project and receiving reports of broker illegal activities. If the broker's illegal activity is confirmed, it plans to take legal action immediately.

Illegal brokers mainly act by impersonating an exchange employee or using an email address similar to the official email address of the exchange. According to a report recently received by Bithumb, they said that they were in charge of the major departments of Bithumb and discussed the project they wanted to list. In addition, they requested fees, such as a deposit for listing, using an email address that counterfeit Bithumb's official email.

In response, Bithumb announced that it only applies for listing and discusses via official e-mail, and does not negotiate listing through SNS such as Telegram and LinkedIn. Also, if an email is received through an official email account, it is requested that the sender be sure to send a reply email to check whether the sender is correct or not.

An official from Bithumb said, “Bithumb does not receive an application for listing through any channels other than official e-mail and does not require listing fees,” and said, “We must be cautious and pay special attention so as not to be harmed by negotiations on listing through informal channels.” He added, “If the circumstances of attempting an abnormal procedure through a broker, etc. are confirmed, penalties may be returned to the corresponding blockchain project.”

Bithumb compliance and related departments require a quick response for this fraud issue.