Restructuring the Cryptocurrency Market into Four Major Exchanges... What Happens to Coins from Closing Exchanges?

29 Reported Locations... Customer Verification System Must Be Established
Investors in Closing Exchanges Face Difficulties in Recovery if Damaged... Need to Liquidate Quickly

[Asia Economy Reporter Gong Byung-sun] Among the 66 domestic cryptocurrency exchanges, only 29 have survived. Exchanges that have completed registration with financial authorities will be obligated to monitor money laundering more rigorously going forward. However, investors in exchanges that have shut down are expected to inevitably suffer losses.

According to the Financial Intelligence Unit (FIU) of the Financial Services Commission on the 27th, a total of 29 exchanges had completed registration as virtual asset service providers by the 24th. All of them have obtained Information Security Management System (ISMS) certification. Among these, four exchanges?Upbit, Bithumb, Coinone, and Korbit?have received real-name accounts from commercial banks and support Korean won trading. The remaining 25 exchanges can continue operations through coin markets where cryptocurrencies such as Bitcoin and Ethereum are traded.

28 Exchanges Still Awaiting Approval...Must Also Implement Customer Verification System

However, except for Upbit, the registration approvals have not yet been finalized. The financial authorities plan to decide on approval after assessing the exchanges’ deposit management status and information security systems over the next three months. If the authorities do not approve the registrations of exchanges like Bithumb, Coinone, and Korbit, these exchanges must immediately cease Korean won market operations and will not be able to continue business, so investors need to be cautious.

Domestic cryptocurrency investors will be subject to strengthened oversight by financial authorities. The 29 registered exchanges are required to implement a Customer Verification System (KYC). KYC is a system imposed on virtual asset service providers under the Act on Reporting and Using Specified Financial Transaction Information, obligating them to verify customers’ identities, transaction purposes, and sources of funds. Accordingly, investors may need to submit income verification documents or additional personal information upon the exchange’s request. Among the four major exchanges (Upbit, Bithumb, Coinone, Korbit), Coinone is currently conducting KYC, and the other three are expected to implement it soon.

25 Exchanges with Only ISMS Certification...Transferring to Korean Won Exchanges via Cryptocurrency Wallets Can Reduce Losses

Although the 25 exchanges with only ISMS certification can continue operations, investor losses are anticipated. Due to the nature of coin markets, trading is cumbersome and risks are higher, leading investors to avoid trading and causing a decline in trading volume. In fact, when trading cryptocurrencies like Bitcoin and Ethereum, losses are compounded as the cryptocurrencies tend to fall together during a crash. For example, if you purchase a coin called A with Bitcoin and both Bitcoin and coin A drop by 10% each, the total loss amounts to 20%.

Especially if investors have invested in "Kimchi coins" listed only on those exchanges, transferring to other exchanges is impossible, which can lead to greater losses. An industry insider explained, "You need to hold Bitcoin or Ethereum to trade other cryptocurrencies, so multiple steps are required," adding, "Investors are expected to increasingly move to the four major exchanges that support Korean won trading."

37 Exchanges Closing...Urgent Need to Convert to Cash

The remaining 37 exchanges must cease operations. According to the FIU, these 37 exchanges account for about 0.1% of total cryptocurrency trading volume, but their deposit balances amount to approximately 4.18 billion KRW. If unregistered operations are detected, penalties include fines up to 50 million KRW or imprisonment for up to five years.

Investors in exchanges slated for closure should prioritize converting their assets to cash as soon as possible. Financial authorities recommend that unregistered exchanges allow withdrawals for at least 30 days after business closure. However, since this is only a recommendation, some exchanges may ignore investors and engage in "eat-and-run" practices. In fact, among the 37 exchanges, only 12 (DOCOIN, Greenbit, Bon2Bit, Alibit, K-Dex, CoinDealer, DBX24, KODAQS, Bitrade, Wowpax, J-Bit, CoinTong) have been guiding investors on withdrawals as recommended. The rest have already ceased operations or are inaccessible.

Recovering losses for investors is also challenging. If unregistered exchanges refuse or delay withdrawals of deposits or cryptocurrencies, investors can file complaints with the Financial Supervisory Service or request police investigations. However, whether lost funds can be recovered remains uncertain. Professor Hong Ki-hoon of Hongik University’s Business Administration Department stated, "There are various options such as civil lawsuits, but the fastest and most effective way to pressure exchanges is to report to the Financial Supervisory Service and initiate an audit." He added, "Nonetheless, most 'eat-and-run' exchanges lack remaining capital, making recovery of losses difficult."