Need for regulation

Transparent system essential to protect investors

The Moon Jae-in government has decided to crack down on any illegalities related to transactions of bitcoin and other cryptocurrencies. The crackdown will continue until June, focusing on moneylaundering, fraud and other suspicious activities, and comes amid the overheated digital currency market.

We positively estimate the government’s efforts to fight against various types of violations that run counter to fair play and free market principles. It is imperative for the authorities to prevent anyone from engaging in criminal acts using virtual money. It is also urgent to better protect investors from hacking, fraud and other illegal schemes.

Yet, the crackdown itself is insufficient to ensure transparent and safe trading of cryptocurrencies here — something the authorities have so far done little in this regard. Even worse, they have tried to pass the buck to commercial banks which allow investors to open settlement accounts with local exchanges such as Bithumb and Korbit. They should not leave it up to banks to check if exchanges have a proper trading system in place. Financial regulators must do the monitoring and evaluation tasks.

The authorities are under criticism for having taken a hands-off policy as far as digital coins are concerned. The government has yet to acknowledge digital currencies as legal tender, which has made it difficult for financial regulators to oversee the operations of cryptocurrency exchanges here.

In a nutshell, the government and regulators are unable to catch up with the rapidly changing reality. The average daily trading volume of cryptocurrencies on 14 local exchanges is valued at 24.1 trillion won ($21.6 billion), exceeding the average daily turnover of 19.1 trillion won in Korean shares traded by retail investors on the domestic stock markets last month. This means that more investors, especially young ones in their 20s and 30s, are rushing to buy digital coins rather than stocks.

Such a rush has created a cryptocurrency frenzy. The price of a bitcoin, one of the most representative virtual currencies has surged more than 780 percent over the past year. Even the price of Dogecoin has shown a 70-fold increase this year, showing how the cryptocurrency market has already become too volatile. Investors seem to be gambling with digital coins to hit the jackpot. It is not investment, but risky speculation with a get-rich-quick mentality. Unlike conventional money, cryptocurrencies are not a stable store of value. They have turned into virtual assets only for speculative gains.

The cryptocurrency craze can be attributed to excessive liquidity created by monetary and fiscal easing amid the COVID-19 pandemic. A growing number of individuals are moving to the virtual money market following asset bubbles in the housing and stock markets. Now, investors should refrain from betting their bottom dollar on digital currencies. They must prepare for the potential bursting of bubbles.

The government, for its part, should hammer out comprehensive measures to ensure a fair, safe and transparent trading system to protect investors. Most of all, it is urgent to lay the legal and institutional groundwork for establishing an effective regulatory regime for cryptocurrency transactions.