Investors, cryptocurrency exchanges and banks in South Korea appeared to be confused Sunday over the government’s push to launch a real-name trade system of digital currencies as part of efforts to tighten its grip on the fast-growing and unfettered market.

Starting Tuesday, cryptocurrency purchases using local currency will be allowed only for individual accounts registered under real names. Bank accounts of digital coin buyers using local currency and of cryptocurrency exchanges must be registered under the same bank. Minors and foreigners are to be banned from creating an account to buy coins in the Korean won.

So far, cryptocurrencies have been traded through virtual accounts by banks. The government’s move to verify traders’ identification came amid intensifying concerns over speculative investors and the nature of digital coins as more volatile assets than conventional currencies.

Since late last year, the South Korean government has been stepping up efforts to curb speculative activities such as money laundering involving such anonymous accounts, warning that it might consider shutting down the market. On Dec. 28, regulators imposed a ban on creating anonymous bank accounts to curb speculative investments. 

With the new rule implemented this week, commercial banks that partner cryptocurrencies are uneasy, as customers may rush to create new accounts and the new rule means strengthened monitoring by regulators.

“A new customer to a bank (to trade cryptocurrency) may have trouble opening bank accounts, since we have strengthened oversight on the process to open a bank account” a source from one of the banks launching a real-name transactions system told The Korea Herald Sunday.

Preparing the launch of the real-name transaction system are six Korean banks -- Nonghyup Bank, Shinhan Bank, KEB Hana Bank, KB Kookmin Bank, the Industrial Bank of Korea and Gwangju Bank. The government’s anti-money laundering approach resulted in decisions by banks, such as Woori Bank and the Korea Development Bank, to forfeit plans to create a system for real-name cryptocurrency trades.

The Financial Services Commission on Jan. 23 unveiled a new set of guidelines for banks to abide by anti-money laundering rules in allowing the real-name coin transaction system.

Following the measures, banks have reportedly hesitated to issue new corporate accounts to minor exchanges in South Korea.

Major exchanges in Korea, such as Bithumb, Upbit, Coinone, Korbit, among others, have sealed contrasts with banks for the real-name transaction service before the announcement by the FSC was put in place.

An exchange that met hurdles in getting a new valid corporate account gave up on plans to carry out a real-name transaction system and instead decided to stick to transactions using cryptocurrencies.

“We cannot trust either the banks or the government anymore,” a source from a local cryptocurrency exchange said. “We couldn’t get a response from the bank that we were trying to create a new one from.” The exchange had a corporate account from a bank that does not have a plan to devise a real-name transaction system.

Meanwhile, traders remained dismayed, as they have seen a constant drop in the value of their digital assets over a couple of weeks.

A Korean coin trader surnamed Kim has lost nearly 50 percent of his assets for a few weeks. After first investing in virtual coins starting in early January, the 26-year-old experienced severe ups and downs amid uncertainties posed by the government and media reports here.

“Investors become frustrated when a remark by a government official or a single news report causes a plunge in price,” Kim said. “But I believe that, in the long run, the market itself will survive.”

By Son Ji-hyoung
(consnow@heraldcorp.com)