Regulation
Upbit and Other South Korean Exchanges Suffer from New Cryptocurrency Law
On July 19, 2024, the Virtual Asset User Protection Act came into effect in South Korea. The new cryptocurrency law aims to create a safer environment for virtual asset users and establish a solid order in the virtual asset market. However, the immediate impact on trading volumes on major South Korean cryptocurrency exchanges, including Upbit, has been significant. These exchanges have reported significant drops in their trading volumes.
Impact on Upbit and other South Korean CEXs
Upbit, founded in October 2017 by Dunamu, has quickly become the largest cryptocurrency exchange in South Korea. Additionally, Upbit Exchange It has maintained a leading position in the market thanks to its intuitive interface and wide range of supported cryptocurrencies.
However, in the last 24 hours, Upbit’s trading volume has dropped by 29.4%, falling to $1.50 billion, according to CoinGeckoFurthermore, this significant drop underlines the initial reaction of the market to the new regulatory environment.
Founded in 2013, Bithumb is one of the oldest and most well-known companies in South Korea cryptocurrency exchanges. It has consistently ranked among the top 50 exchanges in terms of trading volume and user base. Despite its prominence, Bithumb has seen a 24.7% decline in trading volume, reaching $425.22 million in the last 24 hours.
Coinone, founded in 2014, has positioned itself as a major player in the South Korean cryptocurrency market. It offers a robust trading platform and various services, including staking and lending. Coinone has taken the hardest hit among major exchanges, with trading volumes falling 38.4% to $23.36 million. Furthermore, this sharp decline reflects the market’s increased sensitivity to regulatory changes.
Korbit, one of South Korea’s pioneering exchanges, was founded in 2013 and has been instrumental in driving cryptocurrency adoption in the country. Korbit mirrored the impact on Coinone with a 38.4% surge to $5.07 million in the past 24 hours.
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Overview of the new cryptocurrency regulation
The Act on the Protection of Virtual Asset Users aims to fill various gaps in the previous regulatory framework, which mainly focused on anti-money laundering measures. The main provisions of the new South Korean cryptocurrency law include:
1. Protection of users’ deposits and assets: Virtual Asset Service Providers (VASPs) must hold customer deposits in custody with banks and pay interest on those deposits. User virtual assets must be segregated from VASP assets.
2. Insurance and reserve funds: VASPs are required to insure against liabilities arising from cyber attacks or network failures or to set aside a reserve fund for such eventualities.
3. Regulation of unfair commercial activities: The law requires surveillance for suspicious transactions. It also requires immediate reporting to the Financial Supervisory Service (FSS) of South Korea. Those involved in unfair trading activities face severe penalties, including criminal or financial penalties.
4. Supervisory and sanctioning powers: The Financial Services Commission (FSC) and the FSS are granted the authority to supervise, inspect and sanction VASPs. This includes issuing corrective orders, suspending business operations and imposing administrative sanctions.
Furthermore, in preparation for the new law, financial authorities and VASPs worked closely together to ensure compliance. South KoreaThe FSC prepared detailed subordinate statutes and the FSS provided on-site advice and a roadmap for the VASPs.
Additionally, a pilot test was conducted to assess readiness. The Digital Asset Exchange Alliance (DAXA) and 20 virtual asset exchange service providers have also developed best practice guidelines to support self-regulation in the industry.
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