How South Korea’s New Crypto Law Will Impact the Market and Traders

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Big news from South Korea! South Korea’s first comprehensive crypto regulatory framework, the Virtual Asset User Protection Act (VAUPA), is now in effect. The new law aims to safeguard investors following the Terra-Luna and FTX collapse. It mandates that local crypto exchanges keep at least 80% of user deposits with interest rates of 1% to 1.5% in cold wallets separate from their funds. Plus, the law requires monitoring for abnormal trading activities.

How will this impact the market and cryptocurrency traders? 

Let’s take a closer look!

What Do These Changes Mean for the Market and Traders?

This pioneering law addresses unfair trading practices and introduces essential user protection measures, marking South Korea’s first comprehensive regulation for the virtual asset industry as per the FSS press release. The act also requires exchanges to secure insurance or establish reserve funds to prepare for hacks or liquidity crises.

To enhance market integrity, exchanges must implement real-time monitoring systems to detect and report illegal trading activities. Non-compliance could result in penalties or suspension by the Financial Services Commission (FSC), which has also launched a 24-hour surveillance network.

Kim Hyoung-joong, president of the Korea Fintech Society, highlighted that while the act establishes a solid regulatory system, it needs to expand to regulate the issuance of virtual assets and promote the local crypto industry. 

Future Regulations

However, South Korea’s virtual asset law, initially planned as a two-part legislation, is now in effect, with lawmakers discussing follow-up regulations. Topics under consideration include regulating token issuers, reviewing the ban on institutional crypto investments, and stablecoin regulations. South Korea hosts one of the largest cryptocurrency markets, with the Korean won being the most-used fiat currency for crypto trading over the U.S. dollar in the first quarter of 2024. 

This move could set a precedent globally. Traders should act wisely and do research before investing in risky assets!