[Q&A] Korea prepares bill to close cryptocurrency exchanges
[THE INVESTOR] The Korean government said on Jan. 11 it is preparing a bill to ban cryptocurrency transactions at exchanges, throwing the virtual money market into turmoil. Right after the announcement, the most popular Bitcoin tumbled 20 percent from a day before.
“Cryptocurrency trading is becoming similar to speculative bets or gambling. Trading at exchanges poses extremely high risks considering its huge volume and frequency,” Justice Minister Park Sang-ki told reporters. “Ultimately, we aim to close the exchanges here.”
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The decision comes after several government measures, including real-name transactions, have had little impact in cooling the overheated virtual money market here, the world's third-largest in terms of trading volume. Despite some price adjustments, cryptocurrency prices recovered the losses soon and continued to set new records.
“The government has continued to send warning messages that it is an extremely risky trading. But the message is not properly being delivered,” he said. “Our stance is based on the fact that cryptocurrency trading is highly risky and the bubble can burst any time soon.”
As of 4 p.m., Bitcoin was trading at 18.32 million won (US$17,097), down 18 percent from a day before, while other popular virtual coins like Ripple and Etherium tumbled almost 25 percent. The price was still a 30 percent premium on global rates.
Due to the so-called “Kimchi premium,” CoinMarketCap, one of the biggest cryptocurrency market tracker, recently removed data from Korea’s big three exchanges -- Bithumb, Coinone and Korbit -- for its price calculations.
Following are the questions and answers during the ministry’s press conference in Seoul.
Q: What’s the ministry’s stance on cryptocurrency transactions?
A: We have great concerns about speculative trading. We are preparing a bill to ban transactions using exchanges. We may not be able to block people-to-people transactions. In the long run, we aim to close exchanges. We don’t see blockchain technology can advance through virtual money trading only.
Q: What’s the legal basis to define cryptocurrency trading as speculative or gambling?
A: Cryptocurrency trading is becoming similar to speculative bets or gambling and several side effects are occurring. Money for industrial growth is being leaked to virtual money trading. We are also concerned about damages individual investors could face when the bubble bursts.
Q: Other countries like the US and Japan are not closing exchanges.
A: In the US, all kinds of commodities are traded at futures exchanges. Bitcoin’s listing doesn’t necessarily reflect the US government’s policy direction toward cryptocurrency trading. Japan has adopted a licensing system for exchanges. Considering overseas media uses the term “Kimchi premium,” they seem to see the trading in Korea as abnormal.
Q: What’s the specific schedule for closure of exchanges?
A: We cannot say about the detailed schedule for now as we are preparing the bill. Before that, we will come up with new measures. About exchange closure, there is no difference in views among government offices.
Q: How do you respond to any side effects from exchange closure?
A: We aim to send a warning message that crypto trading is extremely risky and the bubble can burst any time soon. Investors also need to be warned about the risks.
Q: Closing exchanges seems too extreme. Can’t taxing profits be one of the options?
A: Taxing cryptocurrencies can be seen as a measure that implies the government recognizes it as legal tender. But taxation has nothing to do with the government’s stance. In principal, any financial profits, even from gambling, are not exempt from taxes.
By Lee Ji-yoon (firstname.lastname@example.org)