Huobi Korea, formerly known as South Korea’s HTX global exchange department, has announced its intention to cease operations by January 29. This move, revealed in a recent announcement, is said to be due to the challenging trading environment the exchange has been facing. Notably, Huobi Korea had severed ties with HTX, formerly known as Huobi Global, in January 2023.
The closure of Huobi Korea is part of a broader consolidation trend in South Korea’s cryptocurrency exchange market. Recent months have seen the closure of smaller exchanges like Cashierest and Coinbit, as well as the suspension of operations at CoreDAX. The cryptocurrency trading landscape in South Korea is heavily dominated by five major exchanges: Upbit, Bithumb, Coinone, Korbit, and Gopax. According to the Financial Services Commission (FSC) report, these platforms account for 99.6% of the country’s total cryptocurrency trading volume, a dominance that continues as of June 30, 2023.
Regulatory Challenges
South Korea’s strict legal framework has significantly impacted the dynamics of the cryptocurrency market. The amended Financial Reporting Act of 2021 sets high standards for local cryptocurrency exchanges. To provide fiat-to-crypto conversion services, these platforms must maintain partnerships with local banks. This collaboration is crucial for issuing deposit and withdrawal accounts under real names, a measure aimed at combating money laundering and price manipulation.
Huobi Korea, along with 20 other exchanges, has struggled to establish these vital banking partnerships. As a result, they have been restricted to only offering cryptocurrency-to-cryptocurrency exchange services. The FSC report highlights that out of these 21 exchanges, 10 have generated no revenue from cryptocurrency 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 planned introduction of the “Virtual Asset Investor Protection Act” in July. This new law will impose additional responsibilities on exchanges to safeguard users’ funds. Key measures include requiring exchanges to store 80% of users’ total funds in cold wallets and ensuring insurance coverage to compensate users in the event of events such as hacks or system shutdowns.
Therefore, Huobi Korea’s closure underscores the increasingly stringent legal landscape and growing regulatory scrutiny facing cryptocurrency exchanges in South Korea. As the market shifts towards compliance and better investor protection, exchanges must adapt to these new standards while maintaining viable business operations.
