[Inside Chodong] Regulatory Authorities Stand By Amid FTX Crisis

[Asia Economy Reporter Hyungsoo Park] Although abnormal signals have been detected in the massive virtual asset market with an average daily trading volume reaching 5.3 trillion KRW, regulatory authorities are still standing by citing the absence of related legislation. It has been six months since the Terra-Luna incident occurred last May, but nothing has changed.

With the U.S.'s leading cryptocurrency exchange FTX filing for bankruptcy protection in court, a considerable number of domestic victims are expected. It is reported that assets of more than 10,000 domestic users have been frozen due to the FTX bankruptcy. The FTX native token FTT, which can be traded on Coinone, Korbit, Gopax, and others, will be suspended from trading starting on the 26th.

A problem has occurred at the world's second-largest virtual asset exchange. There are growing concerns about whether similar issues might arise at relatively smaller domestic exchanges, but there is a lack of legal systems to verify this or protect investors. Experts worry that the FTX incident in the U.S. will increase skepticism toward the cryptocurrency market. SK Securities diagnosed that this incident, which started from credit risk and spread contagiously, is similar to the Lehman Brothers crisis that triggered the global financial crisis in 2008. They also expect that it will take a long time for the situation to calm down.

KB Securities predicted that if the exchange bankruptcy leads to a chain reaction, its impact will be greater than the Luna incident. If exchanges go bankrupt in succession and prices of major virtual assets such as Ethereum and Solana fall, decentralized finance (DeFi) liquidations are likely to follow. There are also forecasts that stablecoins will collapse.

The Digital Asset Exchange Joint Council (DAXA), composed of the five major domestic cryptocurrency exchanges?Gopax, Bithumb, Upbit, Korbit, and Coinone?has quickly started crisis management. DAXA promised to promptly provide information and jointly respond to protect investors when a crisis situation requiring investor caution arises. It is difficult to alleviate concerns simply by domestic virtual asset exchanges issuing their own notices.

The regulatory authorities are only responding to the FTX incident by having related teams review whether it will affect the domestic financial market. It is impossible not to revisit President Yoon Suk-yeol’s promise to develop the virtual asset market during his candidacy for the People Power Party earlier this year. President Yoon pledged early this year to "accelerate support for technology development and establish institutional foundations for virtual asset investment." After the presidential election, the virtual asset industry and investors expected that virtual asset investments would be protected within legal frameworks and systems. Amid the sluggish progress of legislation, Representative Yoon Chang-hyun, who leads the People Power Party’s Digital Asset Special Committee, recently introduced two virtual asset regulatory bills. The virtual asset industry expressed regret, saying that the bills focus on regulation without including rules on virtual asset exchange issuance. This contrasts with the Yoon administration’s previous promises to support and invest in virtual assets.

According to the Financial Intelligence Unit (FIU), the average daily virtual asset trading volume in the first half of this year reached 5.3 trillion KRW. As of the end of June, the number of users capable of trading virtual assets was counted at 6.9 million. Among these users, 4.55 million (66%) held virtual assets worth less than 500,000 KRW. Although the average daily trading volume and user base have decreased compared to last year, a majority still invest in virtual assets. Institutional improvements related to virtual assets are urgently needed. Considering the trading volume and number of investors alone, the government can no longer ignore this already massive market.

[Image source=Reuters Yonhap News]

This content was produced with the assistance of AI translation services.