Gov’t wrestles with how to regulate bitcoin

The top financial regulator drafted regulations that would restrict trading of cryptocurrencies like bitcoin to exchanges that meet certain criteria.

According to the draft, any trading of cryptocurrencies outside those exchanges will be illegal and subject to fines of up to 50 million won ($46,000) and imprisonment of less than five years.

But Korea has a long way to go to figure out a regulatory framework for the wildly gyrating cryptocurrency trade.

A local media outlet unveiled the specifics of the proposed regulation on Tuesday. While the Financial Services Commission (FSC) admitted to drafting the proposal, it said changes were still possible.

“We drew up the draft after the joint government meeting on Sept. 29,” said a spokesperson from the FSC. “But it requires additional discussions and is not confirmed by the government.”

Earlier this month, the government said the Ministry of Justice would be the main government regulator of bitcoin, so the FSC’s proposal might face many changes. The Justice Ministry and FSC will meet on Friday to discuss the scope and degree of curbs on bitcoin and other cryptocurrencies.

In the draft, the FSC outlined a set of conditions for bitcoin exchanges to be met.

The regulator will require bitcoin exchanges to separately mange clients’ deposits and establish systems to use real names and avoid money laundering. The conditions also include explaining the risks of investing in cryptocurrencies to customers and revealing the specific prices and volume of trading.

The regulations being considered are a step back from a ban on bitcoin transactions, which parts of the government are considering.

The Ministry of Justice is reportedly leaning towards a complete ban on cryptocurrency trading, while the Ministry of Finance and the FSC are inclined to conditional permission.

The news came as bitcoin continues its meteoric rises and falls in value due to various rumor-driven factors as well as the launch of bitcoin futures in the United States.

The price of bitcoin in Korea went on a wild rollercoaster ride over the weekend, losing as much as 40 percent in value at one point, though the price recovered entering this week to the 19 million won range on Tuesday.

Recent scams involving bitcoin transactions also prompted the government to step up monitoring.

A local teenager released a rumor late Saturday that triggered panic selling. Other scams include identity theft and hacking attempts.

BY PARK EUN-JEE [park.eunjee@joongang.co.kr]