Coinone probed for ‘gambling’

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Coinone probed for ‘gambling’

The police on Wednesday launched an investigation into Coinone, Korea’s third-largest cryptocurrency exchange, for providing what authorities called a “gambling service.”

The service in question was a margin trading scheme involving cryptocurrencies in which customers could open a position with leverage. Customers borrowed money from Coinone to buy cryptocurrencies and bet on whether the price would go up or down. The ratio of loans to money put down was as high as 4:1.

The Gyeonggi Nambu Provincial Police Agency has summoned some Coinone customers for questioning.

The police said margin trading could be categorized as gambling because the scheme involves risking money on an outcome determined by chance. While such practices do exist in the stock market - short-selling is one example - authorities maintain that cryptocurrency exchanges fall below the standards of conventional markets.

Coinone has objected to the police’s interpretation, arguing that margin trading is a legitimate form of cryptocurrency trading.

“Margin trading is different from gambling and is allowed in different countries,” a Coinone representative said. “We will provide legal representation for users who received requests from the police so that they will not experience legal disadvantages.”

Still, the exchange suspended margin trading in December, citing the government’s strict stance on the scheme. Previously, Coinone said it had “thoroughly reviewed” margin trading with a law firm and determined there were no issues with the service.

Other exchanges have also closed their margin trading platforms. Bithumb, the country’s largest cryptocurrency exchange, stopped offering the service last year.

Based on the timing, market observers see the investigation as motivated by government pressure to clamp down on cryptocurrency exchanges and cool down the craze for bitcoin, the most popular cryptocurrency.

Regulators have introduced a series of measures to curb cryptocurrency trading as the market has been racked by scams, security breaches, identity theft and high price volatility.

The Financial Services Commission recently banned banks from issuing virtual accounts, which are required to buy and sell cryptocurrrencies, to individual customers. The government also prohibited minors and foreigners from trading cryptocurrencies at local exchanges.

On Wednesday, the Financial Services Commission and Financial Supervisory Service inspected banks to see whether they adequately tried to prevent money laundering and other fraudulent activity when issuing virtual accounts.

Analysts expect the remaining regulation in the government’s toolkit is taxing cryptocurrency transactions.

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