South Korean Government Concerned With Scams in Bitcoin Market, Fake Exchanges

    The South Korean government and local financial authorities have warned investors about the emergence of fake cryptocurrency and Bitcoin exchanges.

    Fraudulent exchanges

    On Dec. 13, the South Korean government and its cryptocurrency task force formed by the Ministry of Strategy and Finance, Financial Services Commission, Ministry of Justice, Fair Trade Commission and Financial Supervisory Commission held an emergency meeting to discuss the state of the South Korean cryptocurrency market and draft regulations for both businesses and investors.

    Two of the four regulations drafted by the South Korean government during the emergency meeting were:

    1. Disallow foreigners and underaged investors from trading cryptocurrencies
    2. Properly regulate cryptocurrency exchanges as legitimate financial service providers.

    Given the rapidly increasing number of fraudulent cryptocurrency exchanges, platforms and activities, the South Korean government urgently moved to regulating cryptocurrency exchanges and cracking down on fraudulent operations.

    Last week, several fake cryptocurrency exchanges were exposed by the local Bitcoin community and financial authorities. One of the fake exchanges was BitKRX, named after Korea Exchange (KRX), the largest financial trading platform in South Korea established by KOSDAQ, South Korea Futures Exchange and South Korea Stock Exchange.

    The BitKRX exchange marketed itself as a branch of KRX, coaxing users into its platform by promoting its businesses as a regulated and legitimate venture led created by KRX.

    Chosun, one of South Korea’s largest mainstream media outlets, reported that local financial authorities and law enforcement have begun to crackdown on cryptocurrency exchanges with deceptive marketing and fraudulent operations. Specifically, local financial authorities disclosed that several cryptocurrency exchanges in South Korea are unregulated but are operating as legitimate businesses by utilizing the branding of leading financial institutions, like BitKRX.

    One member of the South Korean Bitcoin community told Chosun:

    “A small group of individuals that are not qualified and experienced enough to run high-traffic and large-scale platforms are running cryptocurrency exchanges in the local market. Consequently, traders are not able to properly execute buy and sell orders in a timely manner, causing major losses and difficulties for investors. Strict regulation of the market by the South Korean market will further stabilize the local cryptocurrency market.”

    Optimistic regulations

    Earlier this week, South Korea’s largest cryptocurrency exchange Bithumb, which is also the second largest trading platform in the global cryptocurrency market, stated that a right set of regulations for businesses and investors would nurture the cryptocurrency market and facilitate its exponential growth. Bithumb said:

    ”A right set of regulations will rather nurture the (virtual currency) market, and we would welcome that.”

    For cryptocurrency exchanges like Bithumb, Korbit and Coinone, that process billions of dollars in trades on a daily basis, regulations are necessary because a rather large portion of investors in the South Korean cryptocurrency market are falling victim to Ponzi schemes and scams.

    This month, a $200 mln cryptocurrency-inspired Ponzi scheme was unraveled by the local law enforcement. 14 individuals of MiningMax, a cloud mining Ponzi scheme, were arrested by South Korean police with several charges, including economic crime and fraud.

    According to cryptocurrency market data provider CryptoCompare, the South Korean cryptocurrency exchange market only accounts for 4.6 percent of the global cryptocurrency exchange market, behind the US, Japan and Europe.

    A $200 mln Ponzi scheme in a relatively small market can be avoided if investors directly trade cryptocurrencies on regulated platforms and exchanges.

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