November 22, 2024

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[THE INVESTOR] Korean regulators vowed to tighten regulations on bitcoin and other cryptocurrencies amid growing concerns they are being used to launder money and dodge taxes, but raised the possibility of toning down the initial coin offering ban. 

“We are closely watching the recent developments in cryptocurrency trade. If needed, we will enforce more stringent measures,” said Kim Yong-beom, vice chairman of Financial Services Commission, at a public hearing at the National Assembly to deliberate on a bill that calls for a legal framework for cryptocurrencies. 

“The government doesn’t consider cryptocurrencies as money or financial products. We will regulate bitcoins to curtail money laundering and tax dodging,” he said, calling bitcoin “as a bit of a Ponzi scheme” because it runs on the belief that investors can always resell at a higher price. 

Earlier this week, the government launched a new task force to come up with rules on cryptocurrency transactions. The Ministry of Justice is spearheading the team of related agencies, unlike the previous one that only involved financial regulators. 

“Due to heated speculation in cryptocurrencies, concerns about their use in crimes has increased that could possibly harm citizens,” said Justice Minister Park Sang-ki. “The TF will review regulatory measures on cryptocurrency trade to prevent any possible crimes.”

The ministry stressed cryptocurrencies, without government or institution backing of its value and circulation, have merely become a source of speculation, adding they will not become “the new gold or money in the future.”

As for the controversial ICOs -- raising funds through issuing new cryptocurrencies -- the government took a step back from its previous hardline stance to ban it entirely, but raised the possibility of allowing it for professional investors. 

“Bitcoin is complicated in its technology and investment method. So considering its risk and technology expertise, it is right for professional investors to do an ICO, not regular citizens who are not informed of its technology and complicity,” said Kim. 

Industry experts also emphasized that entirely banning ICO in Korea could hinder innovation and progress. 

“Entirely halting ICO is not the best solution, without knowing what companies may achieve through the funds raised,” said Lee Chun-pyo, honorary professor of economics at Seoul National University. “It could be used for technology innovation and for further investments.”

“ICO is part of equity crowdfunding but more similar in character with private equity due to high risks,” said Hong Ki-hoon. “The purpose of an ICO is to raise funds for the company. So the government should not completely ban ICOs, but regulate them in accordance with the measures applied for equity crowd funding and private equity investments.”

By Ahn Sung-mi (sahn@heraldcorp.com)