Five Things You Probably Didn’t Know About Cryptocurrency in Korea

In our latest episode, we talked to Nathan Park (listen here), an attorney who specializes in crypto regulations in Korea and a general expert in how that country’s government deals with securities trading. We, along with the rest of crypto, have been a bit confused by the influential, yet ultimately opaque information gap that has opened up between the Korean markets and the rest of the world. Every week, some vague news headline or poorly taken screenshot filters through Twitter and Reddit — something like “KOREA CONSIDERING BAN ON ALL CRYPTOCURRENCY TRADING — and everyone freaks out.

Here are five takeaways from the interview, which you should listen to in its entirety here.

1. A healthy percentage of Korean crypto volume comes from Chinese money laundering.

Nathan Park: Chinese people always need a way to get their money out of their country, because it’s so highly regulated. They’re already familiar with Korea, and the Korean government has been somewhat slow in trying to regulate cryptocurrency, which has made it a very good platform for Chinese cryptocurrencies that are mined. 70% of Bitcoin is mined in China and needs to be sold somewhere. They just find it convenience to have it sold in Korea. That’s one reason.

Park went on to explain that the strict Know Your Customer (KYC) regulations that have been implemented on Korean exchanges are part of the country’s attempt to stop the influx of Chinese money from flooding across the border. This could have serious economic repercussions, as he explains here:

Nathan Park: The financial authorities in Korea are very, very sensitive to the dollars reserved that they have. That traces back to the East Asian financial crisis that happened in ’97 when the dollar reserves suddenly ran out and the whole economy went down in the 2008 style. Korea is very concerned about their dollar reserve. These Chinese people selling their Bitcoin and getting their money out of Korea, it’s started to impact South Korea’s dollar reserves.

The nightmare scenario is that they would try to exchange their Korean Won into US dollars and getting it out of Korea, in which case it would destroy the foreign exchange ratio in very quick succession.

3. Nobody in Korea uses crypto as actual currency. The “mania” is purely speculative.

Aaron Lammer:What are you seeing in Korea, in terms of actual usage of crypto?

Nathan Park: None. None. That’s the short answer. In Korea, the crypto mania is there, but it is almost exclusively as a means of trade rather than use as currency. I think you’re right. Everybody is sort of waiting for that moment, but as far as I’m concerned, I’ve never really seen that. Korean people treat it as if it’s a gold bar, basically, that rises or falls in value. The same debate about whether a cryptocurrency is a real currency, that same debate is raging currently, but all the attention is pretty much focused on the rise and fall of the value rather than using that as currency.

4. The vast majority of crypto investors in Korea are in their twenties and thirties. But a full 20% of buyers are day laborers, which has fueled concerns about an entire sector of people getting rekt.

Nathan Park: There was a very interesting poll by a local polling company that actually broke down cryptocurrency trading by age, sort of their political preference, even where they live within Korea. It is mostly people in their 20s and 30s. A lot of them students, I presume college and graduate students, or sort of day laborers, which I thought was really interesting. About 20% apparently of sort of day laborers are into this. You can sort of see how this is more resembling of a lottery ticket for people, rather than a meaningful investment activity.

5. There is no singular voice of “the Korean government.” The debate over crypto is still being played out in Korea.

Part of the information gap about Korea comes from bad headline writing. So when you see a headline “Korea considers ban of all cryptocurrency trading,” what you’re actually hearing is one voice within one part of government. Just as a headline in Korea saying “United States considers criminalizing marijuana” would be misleading if the words were just coming from Jeff Sessions’s office, the Korean government has both its crypto supporters and detractors.

Nathan Park: In the financial sector, there are several ministries, several departments in the parliament, several departments that could conceivably assert jurisdiction over the … Ministry of Justice is one, the Financial Supervisory Service is another one. Each department basically is trying to sort of get a handle on how they want to regulate it. The Ministry of Justice is sort of more hard line on this point. They said, “You know what? Forget all this. Ban them. End them all.” The FSS is saying, “No, no, no. Let’s see if we can find a way to bring this into a more mainstream economy and regulate it properly. Each time they are sort of making a public comment on this, what happens is investors outside of Korea see this, and they don’t read closely enough which department is saying what.

All they’re seeing is: “Oh, Korean government wants to do X. Oh, tomorrow, Korean government wants to do Y.” No, different departments are saying these things as a matter of sort of exchanging their views. Then it’ll all by synthesized down the line and there will be a loll path, and that will be the regulation.

5. All that said, expect strict regulations and possible exchange shutdowns in 2018.

Nathan Park: In 2018, you will see a major policy and some level of major regulation. There’s already the KYC element to it, which is a pretty strict and significant thing, as in you can only trade in real names.

The KYC element is there to prevent money laundering basically, and just by strictly implementing the KYC regulations means that a lot of the incentives to trade through Korea will be gone now, because the reason why there was so much volume in Korea was to do money laundering. I expect the KYC rules to be implemented pretty strictly. A shutdown of all exchanges is also a possibility.