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South Kore­an Cryp­tocur­ren­cy Mar­ket Tar­get­ed by New Rule Change

The gov­ern­ment of South Korea has exclud­ed cryp­tocur­ren­cy exchanges from being cat­e­go­rized as ven­ture busi­ness­es. The gov­ern­ment announced this new cryp­tocur­ren­cy mar­ket rule-change through a press release pub­lished on August 13.

The doc­u­ment issued by the Min­istry of Small and Medi­um-sized Enter­pris­es explained that it would now cat­e­go­rize cryp­to-exchanges along­side bars and night­clubs, which are gen­er­al­ly busi­ness­es that it would not encour­age as ven­ture enter­pris­es.

The rough trans­la­tion reads as fol­lows:

The Small and Medi­um Ven­ture Busi­ness Depart­ment [of the MSS] has no inten­tion to reg­u­late cryp­tocur­ren­cy trad­ing and dis­clo­sures (ICOs), but as prob­lems such as spec­u­la­tion emerge, cryp­tocur­ren­cy exchanges are not a tar­get for the gov­ern­ment to encour­age as a ven­ture enter­prise.”

The rule change marks a shift in the way the South Kore­an gov­ern­ment treats cryp­to-exchanges, which now face strict tax­a­tion and bank­ing tax oblig­a­tions. That said, the gov­ern­ment has ear­marked 5 tril­lion won ($4.4 bil­lion) to be used to fund the devel­op­ment of a plat­form econ­o­my in 2019.

The devel­op­ment of var­i­ous tech­nolo­gies, includ­ing blockchain, has been out­lined, with the projects set to begin next year. Blockchain tech­nol­o­gy will be par­tic­u­lar­ly use­ful in secur­ing data trans­ac­tions and infor­ma­tion shar­ing.

The government’s five-year plan includes eight pilot projects and a bud­get of between 9 to 10 tril­lion won ($8.8 bil­lion).

The Unique South Kore­an Cryp­tocur­ren­cy Mar­ket

The South Kore­an cryp­tocur­ren­cy mar­ket has seen sig­nif­i­cant growth in the past year and was respon­si­ble for a third of all bit­coin trades in 2017, with investors pay­ing “Kim­chi pre­mi­ums”. The term is used to describe the bit­coin pric­ing gap between the country’s exchanges and that list­ed on for­eign exchanges.

Cryp­tocur­ren­cy prices on the nation’s exchanges are usu­al­ly high­er, with the phe­nom­e­non been attrib­uted to the lack of high return invest­ment options in the coun­try. In Decem­ber 2017, for exam­ple, bit­coin rates in South Kore­an exchanges were over 40 per­cent high­er than those on U.S. mar­kets.

Of course, it seems log­i­cal and easy for traders to bank on arbi­trage oppor­tu­ni­ties in such an ecosys­tem. This could be achieved through cur­ren­cy pair trades inter­linked with cryp­tocur­ren­cy pur­chas­es in for­eign plat­forms, and then reselling on South Kore­an exchanges.

Except, it’s not, because of strin­gent finan­cial reg­u­la­tions, cap­i­tal con­trols, and anti-mon­ey laun­der­ing laws. South Kore­an com­pa­nies and indi­vid­u­als face lim­i­ta­tions on the amount of mon­ey they can send abroad and need to receive approval from reg­u­la­tors. How­ev­er, the process is like­ly to be unsuc­cess­ful due to mon­ey laun­der­ing fears.

Unem­ploy­ment among the youth is anoth­er alleged cat­a­lyst of the bur­geon­ing cryp­tocur­ren­cy trend in South Korea. It stood at 9.9 per­cent in 2017. It is esti­mat­ed that three in ten salaried employ­ees had invest­ed in cryp­tocur­ren­cies by the end of last year.

This is accord­ing to a sur­vey under­tak­en by the Saramin recruit­ment agency, a South Kore­an firm. Eighty per­cent of these were peo­ple in their 20s and 30s.

Arti­cle first appeared on Coin­cen­tral

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