Crypt-Friendly South Korea Leads World In Innovation As U.S. Exits Top Ten
South Korea returned to first place in the latest Bloomberg Innovation Index, while the U.S. dropped out of a top 10 that features a cluster of European countries. Crypt-Friendly South Korea Leads World In Innovation As U.S. Exits Top Ten
Korea regained the crown from Germany, which dropped to fourth place. The Asian nation has now topped the index for seven of the nine years that it’s been published. Singapore and Switzerland each moved up one spot to rank second and third.
The Bloomberg index analyzes dozens of criteria using seven equally weighted metrics, including research and development spending, manufacturing capability and concentration of high-tech public companies.
The 2021 rankings reflect a world where the fight against Covid-19 has brought innovation to the fore –- from government efforts to contain the pandemic, to the digital infrastructure that’s allowed economies to work through it, and the race to develop vaccines that can end it.
“In the year of Covid and facing the urgency of climate change, the importance of innovation fundamentals only increases,” said Catherine Mann, global chief economist at Citigroup Inc. “Innovation is often measured by new ideas, new products and new services,” she said, but it’s their “diffusion and adoption” that is the real metric of success.
Much of the Bloomberg data comes from before the virus crisis. Still, it’s notable that many countries high on the index –- like Korea, Germany and Israel –- have been world leaders in some areas of fighting the pandemic, whether it’s contact-tracing or speedy vaccination.
American names like Zoom Video Communications Inc. or vaccine-maker Pfizer Inc. are among the past year’s emblems of innovation, reflecting the U.S.’s top ranking for density of high-tech firms.
The pandemic has also spotlighted a different kind of breakthrough, one that has more to do with policy and organization than technology or research, according to Nobel prizewinning economist Paul Romer.
“We should recognize that the available metrics miss important dimensions of innovation,” said Romer, a professor at New York University’s Stern School of Business. “Officials in Wuhan showed for the first time that in a couple of weeks, it is feasible to test 10 million residents of a city for coronavirus. This was a very important public health innovation.”
South Korean Crypto Exchanges Face Sept. 24 Deadline To Submit License Request
Failure to meet South Korean regulators’ new requirements is expected to wipe out tens of crypto exchange operators.
The deadline for South Korean crypto exchanges to meet new compliance requirements is looming fast, with all operators expected to submit requests for an official license with the Financial Services Commission (FSC) no later than Sept. 24.
Industry actors and representatives for smaller exchanges have contested the new requirements for much of the past year.
The crux has been the obligation that all exchanges show evidence that they are operating using real-name accounts at South Korean banks. The FSC has justified by arguing that there is a high demand from customers for more protection for their assets held at smaller crypto platforms.
Yet South Korea’s banks have, for the most part, refused to engage in any risk assessment process for applicant exchanges, except for the country’s top four trading platforms.
These four exchanges — Upbit, Bithumb, Korbit and Coinone — already account for over 90% of South Korea’s total traded volume, and experts have in recent months made the case that the FSC’s new framework is poised to further cement the country’s crypto space as a monopolized market. Some reportedly expect that close to 40 of the country’s estimated 60 crypto operators will be forced to shut down.
Moreover, estimates by Kim Hyoung-joong, a professor at and the head of the Cryptocurrency Research Center at Korea University, predict that the mass exchange closures will eliminate 42 “kimchi coins” — a moniker for smaller altcoins that are listed on smaller platforms and traded against the Korean won. Lee Chul-yi, head of local crypto exchange Foblgate, has told the Financial Times that:
“A situation similar to a bank run is expected near the deadline as investors can’t cash out of their holdings of ‘alt-coins’ listed only on small exchanges. […] They will find themselves suddenly poor. I wonder if regulators can handle the side-effects.”
With altcoins estimated to account for 90% of traded volume in South Korea’s crypto markets, the FSC has reportedly advised those exchange operators who expect to shut down to notify their clients no later than Sept. 17.
Cho Yeon-haeng, president of the Korea Finance Consumer Federation, has claimed that customer protection is unlikely to be the priority for those exchanges facing imminent closure and that “huge investor losses” are therefore expected due to the freezing of assets and suspension of trading on smaller platforms.
The regulatory heat will also affect international exchange operators. Binance already pre-emptively halted Korean won trading pairs this summer to ensure it does not foul Korean authorities.
The new measures have been designed to curb Koreans’ enthusiasm for crypto trading amid concerns that retail investors, especially those from younger generations, are borrowing excessively in order to trade as they struggle with suppressed wages, a frozen job market and ever-rising real-estate prices.
The Tech Crackdown Bites Korea Inc.
Traumatized tech investors shouldn’t let the drama in Beijing blind them to developments elsewhere. Korean regulators—and politicians—are sending signals of displeasure.
Investors are selling technology stocks in a major Asian economy on regulatory worries just as one of the country’s biggest online payment companies is about to go public. China? No, it’s South Korea.
Shares of South Korean internet companies took a hit last week after the country’s financial regulators said fintech platforms selling products like insurance or funds aren’t mere advertisers, but have to get financial licenses, too.
Shares of Kakao, which owns South Korea’s largest messaging app, are down 20% since last Monday.
KakaoBank is down 17%. The mobile-only bank went public last month and has become the country’s most valuable listed financial company. Kakao’s payment unit Kakao Pay is planning an initial public offering in October. Shares of Naver, another internet giant, have dropped 10% over the same period.
Foreign investors were quick to run for the exits. They net sold around $1 billion worth of South Korean shares last week, according to Goldman Sachs. They are probably haunted by the specter of a crackdown similar to the one happening in China. Shares of Chinese e-commerce giant Alibaba have nearly halved from their peak last year, for example.
The financial impact of the new fintech rules shouldn’t be big, but the worry is that more rules could be coming and could broaden to the whole internet sector. Some South Korean politicians have raised concerns about alleged anticompetitive practices by big tech recently and the impact on small businesses.
The noises about more regulation could last for a while. South Korea’s legislature will conduct its annual audit in October, when legislators probe the work of government departments. Contentious issues like regulation of big tech could continue to dominate the news cycle.
The debate will likely last into March, when the presidential election will be held. Given that the leading candidates are pretty close in the polls, being tough on big tech could become a popular pitch.
With the very different political system in South Korea, any new regulatory actions there are unlikely to be as swift and sweeping as those in China. But tech investors already thoroughly traumatized by the action in Beijing should keep a close watch on Seoul as well.
Korean Finance Minister Vows To Fight Moves To Delay The Crypto Tax Code
The ruling party is planning to attempt a postponement of the crypto tax laws, but the Finance Minister is not for turning.
South Korean Minister of Strategy and Finance Hong Nam-ki has vowed that the controversial crypto tax code will come into effect on Jan. 1, 2022, despite moves this week by the majority Democratic Party to postpone it to 2023.
The tax code will levy a 20% tax on income generated by crypto transactions in excess of 2.5 million Korean won, or about $2,100.
International media this week reported that the Democratic Party, which holds a slim majority in South Korea’s National Assembly, intends to have passed a bill postponing the crypto tax law by the end of October. But the party faces an uphill battle to pass the bill in the face of Hong’s opposition, as it holds only a slim majority.
Hong carries a tremendous amount of political power, having been a former prime minister of South Korea, and he was appointed finance minister by current President Moon Jae-in.
This is at least the second time the minister, who is a member of the minority People’s Power Party (PPP) in the country’s government, has told the majority Democratic Party that the tax would come into effect as planned despite their opposition.
Kim Byung-ook, a National Assembly Representative from the Democratic Party, asked the minister in a National Assembly session on Wednesday whether the tax could be postponed until 2023 to coincide with the capital gains tax on stocks. Kim said:
“Isn’t it reasonable to levy the stock market capital gains tax and virtual asset tax in 2023?”
Minister Hong’s response amounted to a resounding “No.” He further stated that the tax law had already been drafted and completed last year. His response mirrored one made in April 2021 when Hong made it clear that crypto taxes were inevitable.
“In the past, it was almost impossible to collect taxes on virtual asset accounts, so no taxation was carried out […] The foundation has now been laid, and based on that, we will be taxed starting next year,” he said on Wednesday.
Democratic Party Amendment
Representative Noh Woong-rae from the Democratic Party on Thursday made it clear that the ruling party could pass the postponement bill if they can gather the votes.
But they face an uphill battle going up against one of the most seasoned and highly respected politicians in the country at a time when the Democratic Party’s majority has become precariously narrow. The Democratic Party lost 18 of its 180 National Assembly seats in local elections in June, showing that they have fallen out of favor.
Some bad blood may also exist between the party and Hong since the Democratic party once called for Minister Hong’s dismissal from office.
The Democratic Party is opposed to the bill on a number of grounds and contends that there is inadequate infrastructure in place for the government to calculate and collect crypto taxes. As of now, the National Tax Service (NTS) plans to rely on crypto exchanges to report users’ transaction data for the purpose of calculating taxes.
To ensure exchanges can securely collect this data, the government has compelled them to obtain Information Security Management System certification and a partnership with a local bank for real-name bank accounts for each individual user.
These requirements, stipulated by the amendment to the Special Reporting Act, will lead to closures of more than 40 crypto exchanges across the country by Sept. 24.
The NTS does not have the capability to collect data from private wallet transactions for the purpose of taxation. In the absence of such infrastructure, the Democratic Party believes tax evasion may increase.
Representative Noh shared his commitment to working across party lines with fellow representatives to secure the votes needed to pass a postponement bill by the end of the open session in October.
This is far from the first time the crypto tax law has been threatened with postponement. Shortly after the tax bill was passed about a year ago, the Korea Blockchain Association was among the first group to call for postponement. The KBA pointed out that institutions, including crypto exchanges, would need a longer grace period to prepare for the new taxes.
Opposition to the tax mounted through the first half of 2021 from several sources, not least of those being the Democratic Party. In May, Koh Young-Jin, secretary of the National Assembly, discussed in the open session the benefits of postponing the tax.
Bybit Crypto Exchange Suspends Services In South Korea
Amid the looming regulatory deadline in South Korea, a major crypto exchange is closing up shop in the country.
Bybit, one of the world’s top cryptocurrency derivatives exchanges, will halt some of its services to South Korean users ahead of a licensing deadline.
The exchange officially announced on Friday that it will discontinue Korean language support from its platforms as well as its official South Korean community on social media. The suspensions will take effect starting on Monday.
“Korean traders may still use Bybit products and services. These products and services just won’t be offered in the Korean language any more,” a spokesperson for Bybit told Cointelegraph.
Bybit will remove the functions ahead of a Sept. 24 deadline for cryptocurrency businesses to submit requests for an official operating license. “We had conversations with Korean regulators on that. We were told that licenses would only be given to local entities, and our setup precluded that,” a Bybit representative noted.
The new Anti-Money Laundering requirements are mandatory for local exchanges and foreign exchanges operating in the country that offer Korean language support or won-denominated trading pairs.
This has led some major foreign exchanges to stop offering services in the country rather than fall in line with the stringent new requirements of providing real-name accounts through a local bank. Last month, Binance halted won trading pairs and removed Korean language support from its site.
Today, Bybit said that it “accepts its responsibility as an exchange and an industry leader in actively cooperating with regulations implemented by various jurisdictions to promote financial inclusion and develop the overall crypto industry.”
According to a spokesperson from Bybit, the majority of the exchange’s trading is coming from Europe, with European accounts making up more than 50% of trading volumes.
According to the South Korean Financial Services Commission, crypto platforms that failed to request a license should notify their customers of an expected closing date and procedures to withdraw money “by at least seven days before the closure,” reportedly no later than Friday, Sept. 17. According to Reuters, more than 60 crypto exchanges in South Korea must notify customers of a partial or full suspension of trading by Friday at midnight.
DCG-backed Korean Exchange Faces Closure If It Can’t Find Banking Partner
South Korean crypto exchange Gopax has told users if it can’t resolve its banking difficulties before a looming regulatory deadline, it will need to shut down.
South Korean crypto exchange Gopax, which is backed by Digital Currency Group, is facing potential closure ahead of the country’s fast-approaching deadline for platforms to submit their requests for an official operating license.
To be eligible for a license, all crypto exchanges must show evidence that they are operating using real-name accounts at South Korean banks.
The catch is that domestic banks have, for the most part, refused to engage in any risk assessment process for the country’s numerous small and medium-sized exchanges and have only been confident enough to service the country’s top four trading platforms: Upbit, Bithumb, Korbit and Coinone. The deadline for all license applications is now just one week away, on Sept. 24.
In a notice to users published on Friday, the Gopax team wrote that the exchange “is currently negotiating with a financial institution to establish a real-name verification deposit and withdrawal account,” as stipulated by the new regulatory regime.
Until Sept. 24, the exchange will continue to operate its Korean won crypto trading services as normal, but if the negotiations do not resolve the issue, Gopax has warned that it will inform users of the end of support for won transactions, deposits and withdrawals in a follow-up notice.
The platform has already ceased services for non-Korean users, who are prohibited from using the country’s exchanges under the new rules.
Gopax’s operator is a company called Streami, which has received funding from Shinhan, one of South Korea’s largest commercial banks.
The exchange operator has been proactive in trying to establish the platform’s compliance credentials, working to acquire an ISO/IEC 27001 certification and K-ISMS certification, both in 2017. CryptoCompare currently ranks Gopax as the top platform in the country when taking factors such as legal and regulatory metrics, the caliber of investment, quality of data provision, and trade surveillance into account.
Experts have estimated that close to 40 of South Korea’s estimated 60 crypto exchange operators will be forced to shut down due to the new licensing rules. The Financial Services Commission, which is overseeing the new regulations, has justified its requirements by arguing that there has been high demand from traders for more protection for their assets held on smaller cryptocurrency exchanges.
Banks have themselves contested the incoming measures, arguing that they are essentially being asked to indirectly vet the country’s exchanges by having to take responsibility for issuing real-name accounts. One banking industry representative claimed that this is a “dangerous and costly task” for financial institutions.