Bitbuy Korea Disappears After Promoting Margin Trading Exchange and Raising Investment Funds
Completely Blocking Margin Trading Is Impossible... "Exchanges Must Actively Warn About Risks"
[Asia Economy Reporter Gong Byung-sun] On the 8th, Mr. A came across a promotional video on YouTube about an exchange where one could earn enormous profits. The exchange, called BitBuyKorea, was a margin trading platform allowing leverage up to 500 times. Margin trading refers to an investment method where investors can significantly amplify their returns based on the leverage they set, but conversely, they can also incur substantial losses. Although Mr. A did not fully understand margin trading, he was captivated by the explanation that profits would be recognized up to 500 times and began investing. However, BitBuyKorea disappeared on the 10th after collecting investment funds. Currently, the number of victims is estimated to be around 1,000, but the exact amount of damages has not even been tallied.
Recently, margin trading scams targeting cryptocurrency investors seeking gambling-like returns have been rampant. These scams promote high returns and then disappear once funds are collected or leave investors to continue losing large sums. It has also been observed that more investors are using overseas exchanges that allow margin trading to achieve extreme profits.
South Korea implicitly does not permit cryptocurrency margin trading due to its highly speculative nature. In 2017, the government banned initial coin offerings (ICOs), which were controversial due to fraud issues at the time, and also blocked margin trading. Consequently, Coinone, a domestic cryptocurrency exchange that allowed margin trading up to four times the margin, was investigated by the police in 2018 on charges of operating illegal gambling and abandoned its margin trading business. However, in March of this year, prosecutors cleared Coinone of charges related to margin trading. Although the prosecutors did not disclose the reasons for the dismissal, the industry speculates it was due to unclear grounds for punishment.
Despite this, investors flock to cryptocurrency margin trading because it offers the possibility of extreme returns and there are no relevant regulations or enforcement methods. In fact, it is easy to find content on YouTube or online communities about how to do cryptocurrency margin trading or boasting huge profits. When YouTuber Mr. A broadcasted his profit-making through margin trading on an overseas exchange, viewers left comments asking for methods and study tips on margin trading.
Experts explain that it is impossible to completely block cryptocurrency margin trading. Authorities cannot regulate the transfer of cryptocurrencies like Ethereum or Ripple purchased on domestic exchanges to overseas exchanges that allow margin trading. Additionally, the cryptocurrency market is so vast that authorities cannot monitor it all, and given that cryptocurrency investors tend to pursue extreme returns, it is difficult to impose sanctions.
However, experts emphasize that investors must recognize that this is a very risky investment method. Professor Lee Byung-wook of Seoul National University of Science and Technology said, "In capital markets, margin trading is at least used for hedging to prevent losses, but in the cryptocurrency market, margin trading is used to achieve gambling-like profits." He added, "Japan passed a bill last year limiting margin trading leverage to 2 times, and the U.S. Commodity Futures Trading Commission (CFTC) has increased regulatory intensity, investigating Binance's margin trading records, reflecting a global trend to regulate margin trading." In fact, Coinbase, listed on Nasdaq, ended its margin trading service last November after failing to withstand CFTC regulations.
Above all, there are calls for exchanges to take action because cryptocurrency margin trading disrupts the market. Professor Hong Ki-hoon of Hongik University’s Business Administration Department said, "Margin trading is the entity that injects excessive liquidity into the cryptocurrency market, causing investors to be misled." He added, "Domestic cryptocurrency exchanges, which have been somewhat passive on this issue, should actively inform investors that margin trading through overseas exchanges or fraudulent companies is dangerous."
© The Asia Business Daily(www.asiae.co.kr). All rights reserved.
