South Korea Responds After China Launches Cryptocurrency Exchange Restrictions

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Following China’s statement of new restrictions and regulations they are placing on Bitcoin, which sent cryptocurrency exchanges tumbling, South Korea responded by rolling out their own restrictions. On June 13th, 2021, The Korea Times reported South Korea’s Financial Services Commission (FSC) released a public statement that would force banks to classify clients with cryptocurrency in their portfolio as “high-risk”. Those individuals would in turn be subject to more stringent monitoring and trading rules. South Korea’s goal in doing this was made abundantly clear: reducing the regulatory risks posed to banks servicing crypto firms (Hwang, The Korea Times).

The FSC’s new guidelines make it mandatory for banks to report high-volume crypto transactions from suspicious entities. Additionally, they are requiring impacted firms – current and future – to implement a KYC (Know Your Customer) guideline prior to partnering with any crypto exchanges. As mentioned, this comes directly on the heels of China (the largest economy in the world) announcing rigorous cryptocurrency trading regulations. South Korea appears to be aligning themselves more closely with their neighbor, however other countries and governments have been looking at cryptocurrency exchange trading from a different perspective.

Goldman Sachs responded to the news very quickly, announcing to their shareholders that they will expand into Ether in order to limit their exposure to just Bitcoin (Singh, MINT). The legendary investment bank will additionally offer futures trading and options for Ether, but they do not appear to have any plans of exiting the crypto space. That’s because there is still plenty of room for capitalization. To some, volatility suggests greater return opportunity, rather than enhanced risk potential. Additionally, as Mathew McDermott, Goldman Sachs’ Global Head of Digital Assets, announced the firm will be offering services to facilitate trades involved with exchange-traded notes linked to Bitcoin (Singh, MINT).

When it comes to other governments, many emerging markets and emerging economies in particular are looking to expand cryptocurrency acceptance. The following day, June 14th, 2021, Tanzania’s President suggested the country’s central bank should explore cryptocurrency. “We have witnessed the emergence of a new journey through the internet,” Samia Suluhu Hassan – President of Tanzania – said, also adding “the central bank should be ready for the changes and not be caught unprepared” (Haig, Cointelegraph).

The same desire was echoed by several Latin American countries in particular, most notably El Salvador and Paraguay, where Bitcoin has been mandated as legal tender. The President of Tanzania may have more of a realistic pulse on crypto trading, unlike China and South Korea, as she appears very cognizant of the profound emergence of digital currency as a widely popular, booming global investment tool. Rather than trying to restrict and limit trading practices, which can be extremely important in certain instances and definitely not meant to be underscored, recognizing the uncontrollable phenomenon crypto trading has become is valuable in and of itself. Restricting or attempting to disincentivize investors from participating in this particular market can adversely lead to more fraudulent activity, as investors clearly see a benefit to trading in this market, but are constricted from it because of their country’s regulations. Furthermore, this may lead to some seeking out non-traditional, or even illegal, methods of participating in that market because they have to circumvent rules.