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S. Korea Crackdown, Website Exclusion Erase $100 Bln Cryptoasset Market Cap

Southkorea-Bitcoin-010918-lt.jpg

The "hyper" exuberance of the digital currency market was served a damper on Monday as South Korean authorities announced a crackdown on the retail banks, which were funding cryptocurrency exchanges.

Following the news, a leading cryptocurrency market data provider, CoinMarketCap, removed some Korean exchanges from its price calculations, without any warning, causing a sharp slide in prices of digital coins it tracks.

"This morning we excluded some Korean exchanges in price calculations due to the extreme divergence in prices from the rest of the world and limited arbitrage opportunity," CoinMarketCap said in its official twitter account.

The combined impact was a near $100 billion fall in the overall market capitalization of digital currencies.

During January 8, the total market capitalization fell to as much as $668 billion from $774 billion, according to CoinMarketCap data.

South Korea's Financial Intelligence Unit and Financial Services Commission launched a probe into six commercial banks, which were offering trading accounts to crytpocurrency exchanges in the country.

Joint inspections will be carried out in Woori Bank, Kookmin Bank, Shinhan Bank, NongHyup Bank, Industrial Bank of Korea and Korea Development Bank from Monday through Thursday.

Officials will check whether these banks comply with their anti-money laundering obligations in their transactions with cryptocurrency exchanges, the Financial Services Commission said in a statement on Monday.

They will also inspect whether these banks have implemented appropriate measures to verify their customers' identification in regard with cryptocurrency trading.

"Cryptocurrencies are highly likely to be used as a means to money laundering due to their nature of anonymity and non-face-to-face transaction," the FSC said.

"The government continues to review all possible options including shutdown of crytptocurrency exchanges in order to minimize side effects of cryptocurrency trading - fraud using cryptocurrencies, cyber hacks on cryptocurrency exchanges, and irrationally overheated speculation," the agency added.

The country has witnessed intense interest in cryptocurrencies such as Bitcoin and is one of the most active markets for virtual currencies with several cryptoexchanges located there. Prices of cryptocurrencies in the South Korean market tend to much higher than elsewhere as buyers exceed those willing to sell.

The South Korean watchdog pointed out that the so-called "virtual accounts" offered to cryptocurrency exchanges have been making it more difficult to identify real names of account holders, and leaving cryptocurrency trading more vulnerable to crimes and money laundering.

The number of accounts linked to cryptocurrency exchanges totaled 111 with a combined deposit value estimated around 2 trillion won or $1.8 billion, Yonhap, a South Korean news agency, reported. More than 2 million Koreans own digital currencies.

Late December, the South Korean government said that it was planning to implement special measures to curb speculation in the virtual currency market.

New measures will require real-name cryptocurrency transactions, starting January 20. The country also plans to ban the issuance new virtual accounts to cryptocurrency exchanges.

FSC Chairman Choi Jong-ku has sought deeper co-operation with regulators in China and Japan, two other main markets for digital currencies, in curbing intense speculation in cryptocurrencies.

At a press conference Monday afternoon, Choi expressed concern over the lack of information regarding what is exactly happening in the virtual currency market.

With the assistance from the justice ministry and tax agency, the FSC plans to establish a legal base for the digital currency market, allowing the agency to inspect cryptocurrency exchange operators directly, Choi said, The Korea Times reported.

The watchdog also plans to strengthen the punishment for crimes linked to virtual currencies.

As of 5.00 am ET On January 9, Bitcoin was down 4.12 percent at $14,910, while Ethereum was up 5.36 percent at its near record high $1,221 on coinbase. Ripple, one of the most popular virtual currencies in South Korea, was down around 6.26 percent at $2.41 on CoinMarketCap.

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