From fraudulent exchanges to government regulations forcing smaller platforms to cease business, investors are constantly threatened by potential stock market closings. Without depositor protection for trading cryptocurrencies, losses will be eaten up by investors.
A retail investor bought Altcoins – smaller coin alternatives to Bitcoin – including Dogecoins valued at 200,000 won ($ 180) three years ago from CoinExchange. After being badly hit by the cryptocurrency crash in 2018, he decided to forget about the purchases. Even if he tried to withdraw the altcoins, he would get almost nothing.
When Dogecoin prices skyrocketed recently, he rushed to CoinExchange to withdraw profits only to find out the company closed in 2019. The Dogecoin, valued at 200,000 won, would be valued at around 14.8 million won today.
Although he contacted CoinExchange via Twitter, he received no response.
In contrast to registered financial institutions that have to be licensed by tax authorities, such as B. the Financial Services Commission (FSC), cryptocurrency exchanges only need to register with a local tax office. Lower barriers to sharing also mean almost anyone, including those who are not qualified, can open business.
“There are fake companies that offer so-called management consultancies and say that they can help build cryptocurrency trading platforms for no more than 10 million won,” said a spokesman for a local exchange on condition of anonymity. “Such exchanges do not have the necessary infrastructure or security standards for trading virtual assets.”
Investors are hooked for any losses and may even leave empty-handed.
One example is Coinnest. In January, a court upheld an 18-month sentence for Coinnest co-founder and CEO Kim Ik-hwan for receiving hundreds of millions of won bitcoin as a bribe for ordering an undisclosed altcoin. Coinnest had to close in 2019. Posts from coin holders trying to withdraw from Coinnest are rife on crypto community websites.
Crypto exchanges have full authorization to list and delete virtual assets. Unlike stocks, which are listed after review by the Korea Exchange (KRX), there are no guidelines for listing virtual assets. This resulted in more than 200 altcoins trading on Korea’s major crypto exchanges, in stark contrast to Coinbase, a US-based exchange that only trades around 50 virtual assets. In the United States, federal agencies like the Commodity Futures Trading Commission (CFTC) and the Securities and Exchange Commission (SEC) regulate virtual assets.
“The government needs to establish guidelines for cryptocurrencies that give exchanges the authority to list new virtual assets but take full responsibility if they are found not to provide the required information or to list fraudulent ones,” said Park Seong-jun , Head of Blockchain Research at Dongguk University Center. “We need to view virtual assets as an appropriate asset for regulations to ensure mutual control.”
Implementation of the amendment to the Law on Reporting and Use of Specified Financial Transaction Information, which only allows investors to trade cryptocurrency through real accounts, can also cause chaos.
Failure to find partner banks that issue real bank accounts can cause exchanges to close. In the worst case scenario, traders may not be able to withdraw their deposits during the massive shutdown. Unlike banks, crypto exchanges don’t need to hold a specific amount of money to prepare for withdrawal requests.
When the exchanges are overcrowded with investors trying to withdraw money, there may be transaction delays or bankruptcy problems. Recently, there have been complaints that some exchanges have seen volume decline and large positions take days to sell.
There is also no clear-cut way to verify that the exchanges are selling or faking virtual assets that they actually own.
“We will do our best to notify investors before the change is enforced so that they can withdraw their money safely,” said an FSC spokesman. “Investors need to be aware that if a stock market closes abruptly, their deposits cannot be protected and there is no other option for them to get the money back than to file a civil lawsuit.”
FROM HONG JI-YU, LEE TAE-HEE [firstname.lastname@example.org]