On Wednesday night, bitcoin and the entire crypto sector tumbled more than 10%, following reports that the Ministry of Justice in South Korea - one of the world's most active cryptocurrency markets - said it was preparing legislation to close the country's online exchanges amid a speculative boom in cryptocurrencies. That shot across the bow was paired with the news that tax authorities were investigating at least some of the exchanges in Korea.
In a statement, South Korea Attorney General Park Sang-ki said: "The South Korean Ministry of Justice is considering the closure of cryptocurrency trading to bring cryptocurrency mania and speculation under control for investor protection."
However, confusion quickly erupted just hours later when following the surprise announcement, South Korea's Ministry of Strategy and Finance, a key member of the country's cryptocurrency task force, said that it does not agree with the "premature statement of the Ministry of Justice about a potential cryptocurrency trading ban."
In a press conference, the South Korean Ministry of Strategy and Finance told local reporters that it had first heard of the Ministry of Justice’s cryptocurrency trading ban through media reports. The cryptocurrency task force participated by the central bank, MInistry of Finance, Ministry of Justice, and other agencies have not agreed upon the proposal.
“We do not share the same views as the Ministry of Justice on a potential cryptocurrency exchange ban,” MSF said according to the local Naver website.
Kim Dong-yeon, S.Korea Minister of Finance and Economy.
Adding to the confusion is that in addition to the ouctry from the Finance Ministry, the proposed ban drew swift pushback from within the South Korean government – the president's office, in particular, said no move is "finalized" as of yet – as well as cryptocurrency supporters and traders in the country who cried foul as the statements sparked a fall in cryptocurrency prices.
Heading into the weekend, the public backlash against the proposed move was accelerating. On the Korean president's Blue House website, more than 4,000 petitions have been filed related to "virtual currencies" since Jan. 10, CoinDesk reported.
As Coindesk further notes, one petition asking the Minister of Justice to step down in the aftermath of his proposed ban received more than 30,000 signatures on its own. Reuters reports that one petition alone has attracted more than 100,000 signatures and the website became inaccessible due to excess traffic. At last check the petition had over 153,000 signatures and rising fast.
Comments on the government's website included a petition from a user who claimed to have lost money due to the Justice Ministry's saber-rattling. Another petition compared cryptocurrency trading with the stock market, but claimed the latter is much more speculative. Yet another petition struck a supportive note on the development of new rules but called for the government to consult with the wider cryptocurrency community before implementing any such rules.
Angry South Koreans took to the streets to protest the uncoordinated ban announcement:
Jan 13 Myeongdong Seoul, busiest part of Korea.— Joseph Young (@iamjosephyoung) January 13, 2018
This is the mess former (impeached) president left Korea with.
Current gov't infuriated over a million people with #bitcoin trading ban fiasco.#Cryptocurrency market is fine. Fix the country first. Leave #bitcoin alone. pic.twitter.com/AEjmEACsbt
The bizarre unilateral decision by the country's Justice Ministry sparked even more outrage: in addition to the government, and the broader public, Korea's daily newspaper The Hankyoreh wrote that leaders of several opposition parties are moving to criticize what they deem a unilateral crackdown without any discussion or debate. One opposition lawmaker said the ban was not a government position, but rather one that the Ministry of Justice and, possibly the president, hold themselves.
"The government announcement should be based on detailed reviews and coordination. If there is a problem, we should warn and prepare in advance."
Others politicians quickly piled on:
Jang Je Won, spokesperson for an opposition party (Jayoo Party), stated:— Joseph Young (@iamjosephyoung) January 13, 2018
"South Korean government made the public to see its people as uninformed gamblers with a premature statement on #cryptocurrency trading ban. It's not able to read the global trend in finance market."
Yoo Eu Dong, spokesperson for an opposition party (Bareun Party) stated:— Joseph Young (@iamjosephyoung) January 13, 2018
"The Justice Ministry's premature statement on #cryptocurrency trading ban was a mockery of the Korean people. President should apologize to the people and have Justice Minister take responsibility of it.
In other words, from merely a daytrading infatuation, the fate of cryptocurrency trading has rapidly emerged as one of the most politically sensitive and socially polarizing issues within South Korean society, where as we previously reported, nothing short of crypto-mania is raging as "bitcoin zombies", millions of mostly young people, spend their every hour daytrading cryptocurrencies.
Back in November, Prime Minister Lee Nak-yeon warned that "there are cases in which young Koreans including students are jumping in to make quick money and virtual currencies are used in illegal activities like drug dealing or multi-level marketing for frauds." And in an attempt to limit what the South Korean government has called a dangerous obsession, the government has made efforts to crackdown on what it refers to as speculation surrounding cryptocurrencies.
Efforts included new regulations for banks conducting transactions with cryptocurrency exchanges. On Jan. 8, regulators inspected six banks to ensure compliance with the new regulations, which included strict know-your-customer identification rules, among other measures.
However, as confusion over the fate of crypto trading has grown, rather than comply with the new rules, some banks said they would simply cease trading with cryptocurrency exchanges altogether, according to the Korea Times, only to reverse shortly after.
On Friday, South Korea’s largest bank, Shinhan Bank, said that it would be closing down the virtual currency accounts it offers in order to comply with new regulations surrounding their use. The bank said it would ban customers from putting money into their virtual accounts that have been used for trading cryptocurrencies starting Jan. 15, according to Bloomberg. The bank would also delay issuing new virtual accounts for trading cryptocurrencies until the system for preventing money laundering is normalized.
Other banks jumped on board with the Industrial Bank of Korea said it would gradually close down accounts that were issued previously for trading cryptocurrencies, according to Yonhap. IBK also made a decision to not operate a real-name account system for trading cryptocurrencies, as did KEB Hana Bank.
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However, overnight, in an indication that the South Korean purge launched by the Justice Ministry may be ending, and that a cryptocurrency ban will likely not happen following the public outcry, South Korea's Chosun Ilbo reported that "the country will have no issues setting up a real-name cryptocurrency account system by end-January", according to an unidentified official at Financial Services Commission.
Why "real name" accounts? Well, South Korea’s financial authorities asked banks to adopt real-name cryptocurrency account system earlier this month, with Yonhapn noting that the system will reflect the anti-money laundering guideline which is currently being worked on by financial authorities.
In other words, there will be no need to ban cryptocurrency trading as the danger of money laundering will be eliminated, as all accounts trading cryptos will henceforth be under real names, no longer "virtual."
According to Chosun, the commission held a meeting with banks, including Kookmin, Shinhan, KEB Hana, NH and IBK, on Friday to conduct joint inspection over establishing a real-name account system. The article adds that while South Korea is technically prepared to create the system, but banks said the govt needs to give clear stance on its regulations over cryptocurrency trading.
Finally, in the most notable U-turn, while Shinhan Bank earlier said it will delay issuing new real-name accounts for trading cryptocurrencies, an unidentified official at Shinhan told the S.Korean daily that the bank still plans to launch the system after setting up anti- money laundering guidelines.
The news that South Korea appears to be rapidly shifting away from a bitcoin ban posture and toward one of regulation, sent the crypto space much higher overnight...
... as it suggests that instead of banning crypto trading outright, the government will instead allow the local trading frenzy to grow, however while extracting its pound of flesh in the form of transaction fees and capital gain taxes.
Incidentally, if the emerging South Korean model of quasi-approval spreads to other nations, it would be another implicit stamp of approval and regulatory validation of cryptocurrencies, for which the biggest, existential threat, is an outright government ban. However, that is unlikely if instead of shutting it down, governments decide to share the upside through taxation. It would also be the catalyst for the next, and even sharper move higher in cryptocurrency prices.