South Korean cryptocurrency sector Huobi Korea, previously known as the Korean division of the global exchange HTX, has declared its intention to cease operations by January 29. This decision, disclosed in a recent announcement, is attributed to the challenging business environment faced by the exchange. Notably, Huobi Korea severed its association with HTX, formerly Huobi Global, in January 2023.
The closure of Huobi Korea is part of a broader trend of consolidations in the South Korean crypto exchange market. Recent months have seen the shutdown of smaller exchanges such as Cashierest and Coinbit, as well as operational suspensions at CoreDAX. The crypto trading landscape in South Korea is heavily dominated by five major exchanges – Upbit, Bithumb, Coinone, Korbit, and Gopax. These platforms collectively account for 99.6% of the country’s total crypto trade volume, a dominance evident as of June 30, 2023, according to a Financial Services Commission (FSC) report.
Regulatory challenges
South Korea’s strict regulatory framework has significantly influenced the dynamics of its cryptocurrency market. An amendment in 2021 to the financial reporting law has set high standards for local crypto exchanges. To provide fiat-to-crypto services, these platforms must maintain a partnership with a local bank. This collaboration is crucial for issuing real-name deposit and withdrawal accounts, a measure aimed at curbing money laundering and price manipulation.
Huobi Korea, along with 20 other exchanges, struggled to forge these essential banking partnerships. Consequently, they were limited to offering only crypto-to-crypto trade services. The FSC report highlights that out of these 21 exchanges, 10 generated no revenue from crypto transaction fees in the first half of 2023.
Upcoming regulations and investor protection
The South Korean market is poised for further regulatory changes with the anticipated enactment of the “Virtual Asset Investor Protection Act” in July. This new legislation will place additional responsibilities on exchanges for safeguarding user funds. Key measures include mandating exchanges to store 80% of total user funds in cold wallets and securing insurance to ensure user compensation in events like hacks or system failures.
Huobi Korea’s closure, therefore, underscores the evolving and increasingly stringent regulatory landscape for cryptocurrency exchanges in South Korea. As the market moves towards greater compliance and investor protection, exchanges face the challenge of adapting to these new norms while maintaining viable business operations.
