TOKYO—Days after South Korea’s chief proponent of regulating cryptocurrency, Jung Ki-joon, was found mysteriously dead in his home, South Korea apparently has decided not to crack down further on trading in bitcoin and other cybercurrencies. On Tuesday, Choe Heung-ski, chief of South Korea’s Finance Supervisory Service, told reporters that the government would support cryptocurrency trading rather than heavily regulating it or banning it completely.
The value of bitcoin nearly doubled from the year’s low in response, rising to around $11,000 for one BTC. The loosening of South Korea’s grip on regulations is good news for those speculating on cryptocurrency, but some are wondering if there could be any causal relationship, even an indirect one, to the death of Jung.
Jung Ki-joon was in charge of economic issues at the Office for Government Policy Coordination and is credited with tightening South Korea’s regulation of cryptocurrency trading. South Korea’s semi-official state news agency, Yonhap News, reported that Jung, 52, was found dead in his home on Sunday this week.
According to local media reports, Jung was working on legislation that would diminish criminal activity connected to cryptocurrency and also dampen widespread speculation. Last month, at a government briefing, Jung insisted that cryptocurrencies like bitcoin were not a form of legal tender. He warned that the government planned to “strongly respond to excessive cryptocurrency speculation and illegal activity.”
Yonhap reported that Jung had been working long hours and was under great pressure. The police are investigating the exact cause of death. Perhaps he was aware that his work was about to be essentially scuttled by the South Korean government, aggravating his stress. For now, no one knows the answer.
South Korea’s Volatile Approach to Cryptocurrency
South Korea, which is the third largest market for cryptocurrency, has been sending mixed signals about how it would handle its booming bitcoin business since last year, shaking up the markets in the process.
In late 2017, it began cracking down on bitcoin traders and it appeared poised to ban all trading. It did block initial coin offerings and stopped allowing anonymous cryptocurrency accounts. Early this year, South Korean officials hinted that a complete ban on cryptocurrency trading was being planned, but met with massive opposition, especially from students.
South Korean President Moon Jae-in’s approval ratings sank rapidly in mid-January after news reports suggested that cryptocurrency exchanges would be shut down. Many young South Koreans see the trade in bitcoin, Ether, and other cryptocurrencies as their only real chance at acquiring wealth in a country where the odds are stacked against them. While the anger of citizens rose, bitcoin prices also tumbled.
South Korea’s Financial Services Commission on Jan. 23 put out a press release, entitled “Financial Measures to Curb Speculation in Cryptocurrency Trading,” which gave notice that the commission would only allow trade in cryptocurrencies from established-name bank accounts. The rules were intended to make sure banks identified their customers and complied with anti-money-laundering (AML) obligations.
The release stated, “Under the bank account new rule, users who want to make cryptocurrency transactions must have a bank account under their real name at the same bank with cryptocurrency exchanges. Those who do not have their real-name account at the same bank will only be allowed to withdraw money from their existing bank account. To make new deposits, they are required to open a new bank account under their real name at the same bank with the exchanges.” The regulations also forbade those under the age of 18 and foreigners from opening new bank accounts linked to cryptocurrency exchanges. Even harsher restrictions were being considered.
The reasons for banning foreigners from opening new bank accounts for cryptocurrency trading were not simply xenophobic, although that could be possible. There were economic and national-security concerns also at play.
Korea has become a major hub of crypto-speculation. Because many cryptocurrencies trade higher on South Korea's exchanges than in the rest of the world, trades there are known to have what has been dubbed “The Kimchi Premium”—added value—and this has attracted many traders and speculators, some of dubious character.
Korea’s Cold Feet
Korean officials in the country have tended to view cryptocurrency buying and selling as a form of gambling, a means of tax evasion, and a vehicle for money laundering. In addition, Korean government officials have also asserted that North Korea is using cryptocurrency to skirt economic sanctions, make money, and even outright stealing cryptocurrency to finance its military. Early this February, Korea’s National Intelligence Service told lawmakers there was a possibility that North Korea was behind the theft of the $530 million worth of the cryptocurrency NEM, which was hacked from Japan’s cryptocurrency exchange, Coincheck. They did not offer any solid evidence to support this claim, however.
The decision not to tighten restrictions further on cryptocurrency may be a boon for the Korean economy, which, like Japan, is trying to become a world center of cryptocurrency trading. Roughly 5 percent of all global transactions last year used the South Korean currency, the won, making it the fourth most used fiat currency in trading. However, with so much money wrapped up in cryptocurrency in South Korea, especially by young investors, a market crash could do extensive damage to the economy, affecting everyone. Ironically, the impetus to tighten restrictions on trading in cryptocurrency and the risks associated with those trades, seems to have died mysteriously with Jung Ki-joon.