Bitcoin exchange halts trading

A Korean cryptocurrency exchange suspended trading on its platform Tuesday, citing qualms with the government’s requirement to verify the identity of account holders.

Coinpia posted a notice on its website saying it was temporarily suspending transactions of bitcoin and Litecoin, the two cryptocurrencies it sells. Investors will be unable to buy more coins, but they can still cash out their holdings.

Up until Tuesday, Coinpia said it had tried to sign a partnership with a bank to provide cryptocurrency accounts but failed to secure a contract. The company said it would cancel outstanding orders of cryptocurrencies and did not give any indication of when it would resume trading.

Since Jan. 30, the government has mandated that banks directly issue cryptocurrency accounts to customers. Previously, exchanges themselves provided accounts to clients through their corporate accounts, but the process was largely unregulated. There was no way for exchanges to know if a person accessing an account was using a real name because they were not required to follow the strict verification standards applied to banks.

That changed at the end of last month when the government required each cryptocurrency exchange to partner with a bank that would issue accounts on its behalf. Currently, these exchanges include Upbit, Bithumb, Coinone and Korbit.

However, not all banks have embraced the new policy, and some have been reluctant to work with exchanges, citing the government’s cold reception of the market. Regulators have made efforts to control the market and discourage trading, going as far as threatening a complete ban, ever since the value of major cryptocurrencies like bitcoin began ballooning at the end of last year.

Exchanges that have failed to sign with banks include Coinpia, the exchange that suspended trading, Coinplug, Eya Labs, Coinnest and HTS Coin. While investors who already have accounts can still trade on these exchanges, the companies have not been allowed to open new accounts.

The government’s tough stance on cryptocurrencies, as well as posturing by regulators in other countries, fueled a sell-off last week that sent prices tumbling.

The value of bitcoin fell below 9 million won ($8,280) last Friday from a peak of 11 million won on Thursday and continued to drop to 7 million won on Monday.

As of Tuesday afternoon, it was trading at around 6 million won in Korea. This is a huge drop considering that bitcoin’s price reached as high as 27 million won in early January.

In mid-January, the Ministry of Justice said it was considering the possibility of shutting down exchanges entirely. The government later backtracked on the threat, but it remained firm on its stance that the market was overly speculative. In response, current investors have started dumping their cryptocurrencies, some at a loss.

According to a report by Yonhap on Tuesday, only 8 percent of accounts have migrated to banks since the banks began issuing cryptocurrency accounts. The Industrial Bank of Korea, NH Nonghyup Bank and Shinhan Bank are carrying an estimated 1.74 million cryptocurrency accounts.

BY LEE HO-JEONG [lee.hojeong@joongang.co.kr]