Crypto murder case in South Korea spurs tighter industry regulation

SEOUL – Just before midnight on March 29, an assailant dragged a screaming woman away from an apartment block in an upscale Seoul district and bundled her into a car that sped off into the night.

Her body was found a few days later, a murder thought to stem from a dispute over crypto investment losses and an attempt to steal the victim’s digital tokens, according to the South Korean authorities and local reports. Security cameras recorded the kidnapping in upscale Gangnam.

The homicide adds to a string of South Korean scandals linked to digital assets, most prominently the

capture of former fugitive Do Kwon

after coins he created erased at least US$40 billion (S$53.7 billion) in a crash a year ago. The latest incident injected fresh urgency into efforts to get the nation’s first standalone crypto Bill passed in a parliamentary vote as early as May.

“There is finally a consensus on both sides of the aisle that we need to get a law in place as soon as possible,” Ms Back Hye-ryun, chairman of the National Policy Committee at the South Korean Parliament, said in an interview.

“There were too many issues, so it was necessary to focus on one thing first – investor protection – to move on quickly.”

Bill’s details

Ms Back, an opposition lawmaker, has been pushing to get the Bill implemented. Her office said in a statement that the fallout of the Gangnam murder case and the Kwon wipe-out strengthened public consensus for a crypto code.

The prospective law is the Virtual Asset User Protection Bill, which integrates 19 crypto-related Bills after a years-long delay.

The legislation defines virtual assets and imposes penalties for transgressions like the use of non-public information, market manipulation and unfair trading practices, according to a draft seen by Bloomberg News. The code would give the Financial Services Commission the power to oversee crypto operators and asset custody. The Bank of Korea would also be able to probe such platforms.

The legislation will require insurance in case of hacks as well as reserve funds and record-keeping. The rules are set to cover virtual assets such as Bitcoin, while existing capital market laws would apply to tokens viewed as securities.

South Korea’s monthly spot crypto trading volumes sank to about US$38 billion in April from a peak of nearly US$200 billion two years ago, figures from CCData show. This reflects the fallout of the collapse of Kwon’s TerraUSD and Luna coins amid a wider 2022 market rout that erased US$1.5 trillion in value and blew up firms such as FTX.

But the nation remains well known for virtual asset manias. Leading domestic platform Upbit placed in the top 10 for volumes in the past 24 hours among exchanges globally, CoinGecko data shows.

Alternative investment

“In South Korea, wealth growth has been centred on property investment, but it is difficult for young people because real estate is costly,” said Ms Back. “Virtual assets have become an alternative investment for them.”

Besides the murder case and fallout over Kwon – who was found in Montenegro and is wanted by Seoul and the United States – South Korea has also been investigating more than US$12 billion of abnormal foreign exchange transactions, some of which are crypto-linked.

Earlier this week, prosecutors searched the offices of local crypto exchanges Upbit and Bithumb to secure the transaction records of a lawmaker who came under fire for sizeable crypto trading, according to the Yonhap News Agency.

The nation’s intensified push to impose crypto rules is part of a global drive to regulate digital assets. For instance, the European Union, Dubai and Hong Kong have pursued frameworks that seek to protect investors and spur growth.

In contrast, the US Securities and Exchange Commission and the Commodity Futures Trading Commission have cracked down on crypto outfits, where partisan divides have stalled legislative efforts.

Opinion split

It will take a year for South Korea’s law to be enforced if the Bill is passed in May, according to Ms Back’s office. The framework has split opinion, with some arguing that it risks stifling the industry and others saying more is needed.

“The best way to promote an industry is to impose fewer regulations, but with the current Bill, it will make it only more difficult for new businesses to grow,” said Dr Kim Hyoung-joong, a professor at Korea University’s Graduate School of Information Security and the chairman of the Korea Fintech Society.

Ms Back said South Korea’s rulebook will be gradually expanded to improve oversight of crypto exchanges and services like initial coin offerings.

“The number of people investing in and using cryptocurrency has become so significant that the absence of any legal regulation and the inability to do anything in the face of fraudulent activity only mean the legislature is not doing its job,” she said. BLOOMBERG