South Korean regulators are not afraid to show how serious they are when it comes to fighting fraud in the cryptocurrency markets, as seen in the recent raid of UpBit, the country’s largest cryptocurrency exchange on Friday.
Matthias Goldman, Advisor to Constellation Labs thinks South Korea’s anti-fraud measures only ends there. “My feeling is that this does not play into any other ulterior motives of the Korean government,” he said. He added, “Just because fraud happens with a new technology does not make it legal to defraud people. The same criminal and justice systems apply”.
Eiland Glover, CEO of Kowala shares the same sentiment. “Running a large, centralized, unregulated crypto exchange with thousands of daily transactions and billions in daily trade volume of volatile assets presents its principals with many opportunities to skim off the top. You can easily front run transactions, manipulate pricing data, misreport the crypto funds in customer wallets—the list is endless. A little number times a big number is a big number. If you could skim only 2 basis points per transaction, for example, you could purloin $100 million for yourself on half a trillion in annual trading volume.”
This is exactly why government regulation is not a bad thing for the cryptocurrency industry. “I don’t see this as a black and white situation for further crackdown but more for a reason that authorities regulate these exchanges in an ongoing way so that fraud is minimized,” Goldmann said. He added that implementing proper regulation is better and healthier for the whole ecosystem in Korea. “Generally, I don’t see that as a negative thing”.
If this was the case, why was there a broad sell-off in the cryptocurrency markets after the UpBit raid?
According to Daniel Rice, CTO of Sagewise, the market reaction is based mostly on emotions. “There are a number of standard methods for analyzing the value of traditional asset that do not apply to bitcoin or other cryptocurrencies.” This is what, according to him, makes price prediction speculative and more often than not, emotionally driven, as seen in the volatility of the crypto markets.
Rice explains that news such as the UpBit raid and investigation can affect prices because exchange failures have caused the market to crash in the past.
However, news of government investigations and regulation can affect cryptocurrency prices for another reason: they ignite fear that the big government is out to destroy cryptocurrencies because they threaten their monopolies on printing money and earning income.