South Korea Bans Initial Coin Offerings
Banning all forms of raising money through virtual currencies is a preventive measure against threats to financial security
PHOTO CREDIT: Getty Images
On Friday, September 29, South Korea announced that it is banning all forms of raising money through virtual currencies as a preventive measure against threats to financial security. This announcement happened only weeks after neighboring China ruled against initial coin offerings.
In a Reuters report, south Korea’s FSC vice chairman Kim Yong-beom, speaking to the bank of Korea and the National Tax Service, is quoted as saying: “Raising funds through ICOs seem to be on the rise globally, and our assessment is that ICOs are increasing in South Korea as well.”
“There is a situation where money has been flooded into an unproductive and speculative direction,” the vice chairman also adds. In addition, penalties will be given to those who will be involved in issuing of ICOs.
The Reuters report also says that the decision to ban ICOs as a fundraising tool was made because the government sees such issues as increasing the risk of financial scams. The report also cites similar announcements made in the U.S. and China where “increasing trading volumes of cryptocurrencies are sparking concerns.”
In the United States, for example, the Securities and Exchange Commission regulators are making sure that stricter policies concerning ICOs will be in place, but hasn’t yet banned cryptocurrencies.
Many of these countries’ concerns are, in fact, sound.
With the unregulated cryptocurrencies, it is easy to fall into financial scams. Fortune magazine’s David Meyer says in a report: “There are huge risks here, as many of the startups launching ICOs are getting regular people to buy into thin or implausible business plans—or, worse, outright scamming them with pump-and-dump schemes.”
Additionally, Meyer says that Bitcoin’s value has already dropped 2% due to the recent news, and “and a slightly larger drop in the value of Ethereum, the virtual currency that’s used in many ICOs. It remains to be seen how much the Korean ban will affect sentiment in the coming days.”
The South Korean government also made it clear in last Friday’s announcement meant that it hasn’t yet accepted cryptocurrencies as a part of its financial system.