On Friday, the Act on the Protection of Virtual Asset Users became law and went into effect in South Korea. By and large, the new crypto law seeks to create a safer environment for virtual asset users while also sanitizing the broader market. Despite the good intentions, however, the new regime has not come without some downsides. Major crypto exchanges in the region, including Upbit and the rest, have seen their trading volumes drop significantly since the law took effect.
Upbit, Other CEXs Wary of Declining Trading Volumes
Founded in 2017, Upbit quickly rose to fame and became the largest crypto exchange in South Korea. Its support for a wide range of cryptocurrencies coupled with its user-friendly interface may have played a vital role in its popularity, which came about relatively fast.
However, the past 24 hours have seen Upbit experience the unusual after trading volume on the platform fell by over 11% to $1.53 billion. That is, according to CoinGecko data.
Meanwhile, it might be worth noting that the reaction does not exactly come as a surprise. That is because it is expected that the market adjusts gradually to the new regulatory environment. This explains why Bithumb, another popular South Korean crypto exchange, has recorded a notable decline in its trading volumes. Despite boasting one of the largest user bases worldwide, Bithumb saw a 20.7% drop in trading volume, reaching $403.21 million in the past 24 hours.
Among all the major exchanges hit by the new crypto law, Coinone stands as probably the most affected. The platform is experiencing reduced activity, with trading volumes plunging by 41.6% to $19.83 million.
South Korean Crypto Law In Brief
The Act on the Protection of Virtual Asset Users aims to cover up the loose ends of the previous regulatory framework, which focused mainly on anti-money laundering (AML). The new law, however, will operate on four major fronts.
Firstly, virtual asset service providers (VASPs) must protect user deposits and assets by keeping them in safe custody at banks. That is, users’ virtual assets must be separated from the VASPs’ assets.
Furthermore, the law required that VASPs insure against liabilities from hacking or network failures. They can do this by having a viable reserve fund in any case that such unforeseen circumstances arise.
Thirdly, the Act mandates surveillance and reporting of suspicious transactions to South Korea’s Financial Supervisory Service (FSS). Any exchange or individual found wanting in this regard faces financial penalties and possibly criminal punishment.
Finally, the South Korean crypto law grants the Financial Services Commission (FSC) and FSS supervisory and sanctioning powers over VASPs.
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