Illicit crypto arbitrage and fraud thrive in S. Korea despite new regulation
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A month ago, the Korean government enforced special financial information act that virtually bans won-denominated coins trading in foreign country-based exchanges. But crypto arbitrage through prohibited means continues, raising questions about supervisory activities by Korean authorities.
Since the new law disallows won-based trade by overseas-located exchanges, coin traders in Korea instead transmit tokens and bring them back to Korea to make profit from the price difference.
Scammers are suspected to back the practice to manipulate prices and create volatility in the local market for grater profit.
On Wednesday, three Altcoins – 1INCH, AAVE, and MASK – were listed on virtual currency exchange Upbit. The three coins are already listed in foreign Binance exchange. 1INCH was listed at 4,165 won ($3.54) on Upbit at 5 .m., which in only 7 minutes soared 559 times to 23,300 won. On Binance, 1INCH was traded at $7 and investors were able to easily leverage on price difference by buying 1INCH coin from Binance and sending it to Upbit.
Market observers question if authorities are keeping watch to the compliance of the special financial information act that obliges virtual asset operators to report to Korea Financial Intelligence Unit (FIU).
Under offshore clause of the act, overseas virtual currency exchanges that offer service to Korean users also hold responsibility to report as virtual asset operator. But no offshore exchanges have done so. Rather, they chose to suspend Korean language service and halt services to Koreans such as marketing, promotion, and trading support.
Park Sung-joon, head of Blockchain Research Center at Dongguk University, said that the financial authority has enforced the law too hastily with lacking understanding on coins.
The penalizing regulation has in fact done little to contain scheming.
The so-called Squid Game coin without clear validity on the issuer has been flying in extraordinary pace despite warnings.
According to cryptocurrency market tracker CoinMarketCap, Squid Game coin hit 38,696 won by 3 p.m. Sunday, up 157.7 percent from 24 hours ago. Until four days ago, Squid Game was priced 70.82 won apiece but it jumped over 9 times on Thursday to 643.32 won and 3,570.58 won on Friday.
The virtual currency is based on a project that promises to pay 90 percent of entire entry fee to the final winner after playing six games online.
The project yells scam as the coin includes anti-dump mechanism that makes it difficult for users to sell in large quantity. Also, if users want to sell Squid Game coins, they must own another coin called Marbles.
Twitter user Crypto Tyrion observed Squid Game token as “100 percent rug pull,” a type of scam where developers abandon a project and run away with funds.
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