Bank of Korea Assesses Low Risk of FTX-style Bankruptcy in South Korean Crypto Market

In a recent report, the Bank of Korea stated that the possibility of a situation similar to the FTX bankruptcy occurring in South Korea is very small. The report, released on the 18th, assessed major events in the global crypto asset market from the past year and evaluated the vulnerabilities in the domestic market.

The Bank of Korea based its judgment on the fact that the domestic crypto asset market in South Korea is relatively small and primarily involves simple brokerage of exchanges, thus minimizing vulnerabilities. Strict regulations, such as the ban on Initial Coin Offerings (ICOs) and the obligation to maintain separate custody of customer deposits and self-owned assets, contribute to this low risk.

The Specified Financial Information Act prohibits trading, exchange, brokerage, and other activities involving virtual assets issued by virtual asset operators and their affiliated parties. These regulations, coupled with the small market capitalization of crypto assets issued by large technology companies and game companies, further mitigate the risk of a major incident.

While the domestic crypto asset consignment business is not significant and mainly caters to crypto asset companies, the Bank of Korea believes that preparations should be made for potential ripple risks as the connection between the crypto asset sector and the traditional financial system grows.

Although the current regulation of crypto assets is incomplete, the Bank of Korea emphasizes the need to establish a comprehensive response system to address potential negative events in the market. If such events were to occur, the aftermath could spill over into the existing financial system or the real economy.

An official from the Bank of Korea stressed the importance of a comprehensive regulatory response system to mitigate potential ripple risks. They emphasized the need for consistent regulations across countries to prevent regulatory arbitrage and stated their intention to align with major countries in terms of regulatory intensity.

As the South Korean crypto asset market continues to develop, it is crucial to strike a balance between regulatory measures and fostering innovation, ensuring the stability of the market while minimizing risks to both investors and the broader economy.

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