Amid the South Korean Crypto Crackdown, the latest report by the Yonhap News Agency revealed that the Korean Customs Service has confiscated nearly $750 million (885.6 billion won) in false remittances for cryptocurrency transactions this year.
Furthermore, the report stated that the country has seen a drastic hike in illegal foreign exchange transactions using virtual currency. According to the Korean Customs Service, this surge in illicit foreign exchange transactions could potentially be influenced by ‘kimchi premium’, where bitcoins are traded at higher prices in Korea.
Kimchi premium is the gap in cryptocurrency prices in South Korean exchanges compared to foreign exchanges. The price difference may be caused by a lack of high-return investment options for investors in South Korea.
“Last year, illegal foreign exchange transactions also decreased due to the reduction of foreign exchange transactions and trade volume due to Corona 19, but it is on the rise again this year…We need to come up with an effective response plan,”, the Korea Customs Service quoted Yang Kyung-sook, policymaker for the Office of Democratic Party.
The Korea Customs Service revealed that including cryptocurrency transactions, the number of illegal foreign exchange transactions that the Korea Customs Service caught by August this year amounted to 1.2 trillion won. They further stated that this year’s seized amount has shockingly exceeded the amount caught last year, which was 718.9 billion won.
Kimchi coin’s crackdown gravitated the token towards illicit use
Last month, South Korea’s Financial Services Commission (FSC) announced the closure of firms that would fail to meet the new compliance requirements by the regulators’ provided deadline. Kim Hyoung-Joong, a professor at and the head of the Cryptocurrency Research Center at Korea University, warned that as majority exchanges’ face a possible shut down, it will, in turn, affect the local tokens’ market and eliminate approximately 42 “kimchi coins”.
“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.”, Lee Chul-yi, head of local crypto exchange Foblgate, has told the Financial Times.