South Korea Clamps Down on Bitcoin Trading Amid Market Frenzy

December 28, 2017

By RAYMOND ZHONG

https://www.nytimes.com/2017/12/28/business/south-korea-bitcoin.html

A restaurant in Seoul, South Korea, that accepts Bitcoin. Credit Yonhap/European Pressphoto Agency

South Korea will require people who trade Bitcoin and other virtual currencies to do so under their real names, the country’s government said on Thursday, as part of efforts to curb speculation.

Bitcoin, the best-known virtual currency, has been on a gravity-defying bull run over the past few months. The price of a Bitcoin started the year at around $1,000 and topped $19,000 earlier this month, causing swarms of ordinary savers around the world to get in on what remains a largely unregulated — and highly volatile — investment.

Nowhere, though, has the frenzy over virtual currencies been as fevered, or as sudden, as in South Korea.

Until recently, markets for Bitcoin and its competitors barely existed in the country. But a dramatic spurt of interest has swept up ordinary people from students to retirees. Trading has become so popular that some South Korean exchanges have set up physical storefronts where the uninitiated can learn more and buy in.

Requiring that trading take place using real names brings virtual currencies like Bitcoin more in line with other financial products in South Korea. Although Bitcoin has shed some of its associations with payment for illegal activity, the real-name policy set out on Thursday could also make it easier for the South Korean government to track transactions and to tax capital gains from virtual-currency investments. The price of Bitcoin tumbled after the announcement.

“Cryptocurrency speculation has been irrationally overheated in Korea,” the government said in a statement, while adding that officials would discuss further potential moves to stem speculative trading, such as shutting down some virtual currency exchanges. “The government can’t let this abnormal situation of speculation go on any longer.”

The authorities have taken other steps to rein in the market. In September, South Korea’s financial regulator banned initial coin offerings, a way for start-ups and online projects to raise money by creating and selling their own virtual currencies.

Government officials, including the prime minister, Lee Nak-yeon, have made no secret of their concerns about investor frenzy.

“This can lead to serious distortion or social pathological phenomena, if left unaddressed,” Mr. Lee said after a cabinet meeting in November.

Kim Jin-hwa, who heads an industry association for businesses working with virtual currencies and other applications of blockchain technology in South Korea, said most of the country’s virtual currency exchanges could already verify customers’ identities via their cellphones. The exchanges, Mr. Kim said, had also worked with banks to develop new measures for ensuring transparency.

The government is more interested in sending a warning to investors about the potentially overheated market, said S.G. Lee, chairman of the Korea Fintech Industry Association.

Mr. Lee, who is no relation to the prime minister, said he believed the government had been hoping to cool the speculative fervor merely by discussing tighter regulation — and not by actually implementing too many rules. Officials worry, Mr. Lee said, that more regulation would give virtual currencies greater legitimacy in the eyes of the public, and increase trading activity.

“It’s really tricky for the government,” Mr. Lee said. “They are worried about giving a wrong perception to the people.”

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