Ahead of the 9/24 Deadline, Concerns Over 'Domino Closures'... Chaotic Cryptocurrency Market

Deadline for the Special Financial Transactions Act Approaches
Uncertainty in Bank Real-Name Account Renewals
Growing Concerns Over Branch Closures

[Asia Economy Reporter Gong Byung-sun] As the deadline set by the amendment to the Act on Reporting and Using Specified Financial Transaction Information (the Specified Financial Transaction Act) approaches, the renewal of real-name account issuance contracts between banks and the four major exchanges (Upbit, Bithumb, Coinone, and Korbit) has become uncertain. This is due to a sharp decline in trading volume recently and banks feeling burdened by the risks associated with exchanges, leading them to pursue short-term contracts. Consequently, the possibility of a wave of closures among cryptocurrency exchanges is being raised.

According to the financial sector on the 12th, K Bank, NH Nonghyup Bank, and Shinhan Bank have each decided to postpone the extension of real-name verification account issuance contracts with Upbit, Bithumb and Coinone, and Korbit until September 24. September 24 is the deadline for cryptocurrency exchanges to report under the amended Specified Financial Transaction Act. Exchanges must file reports with prerequisites such as Information Security Management System (ISMS) certification and real-name accounts; otherwise, they must shut down.

Until now, exchanges have signed real-name account issuance contracts with banks on a six-month basis. However, it appears that banks, feeling burdened by the risks inherent in exchanges, have pushed for short-term contract extensions.

Previously, banks requested the financial authorities to establish exemption criteria that would not hold banks responsible even if issues such as money laundering occurred at cryptocurrency exchanges. Due to the anonymous nature of cryptocurrencies, there is a risk of money laundering, and exchanges lack the capacity to establish adequate safety systems. However, on the 1st, Eun Sung-soo, Chairman of the Financial Services Commission, stated, "The primary responsibility for money laundering lies with the banks," adding, "If banks think they can sufficiently handle it, they accept it; if not, they cannot."

Recently, as cryptocurrency prices have stagnated, the transaction volume that would translate into fees, which are profits for banks, has significantly decreased. According to the cryptocurrency market data site CoinMarketCap, as of this date, the 24-hour trading volume of the four major exchanges was approximately 4.8367 trillion KRW. This represents about an 89% decrease compared to the trading volume of 44.9716 trillion KRW recorded on May 7. Furthermore, Scott Minerd, Chief Investment Officer (CIO) of Guggenheim Partners, has predicted that Bitcoin could fall to $10,000 (approximately 11.45 million KRW), darkening the outlook for the cryptocurrency market.

The likelihood of exchanges other than the four major ones continuing operations after September 24 appears even lower. Banks are also feeling the burden due to the financial authorities' tough stance, making it difficult to expect additional real-name account issuances. Gopax, which was expected to be the most likely exchange outside the four major ones to obtain real-name account issuance, failed to partner with BNK Busan Bank. BNK Busan Bank is also reported to have judged that the risk burden outweighs the benefits.

However, experts point out that as the number of exchanges decreases, investors may suffer damages. Oh Jung-geun, President of the Korea Financial ICT Convergence Society, said, "While it is correct to organize the proliferated exchanges, if too few exchanges remain, side effects such as monopolies and abuse of power may occur," adding, "It is appropriate for about 10 to 20 exchanges to remain in the market."