South Korean regulators are getting very serious in fighting fraud in cryptocurrency markets, as evidenced by the raid in UpBit, the largest cryptocurrency exchange in the country on Friday, and the two other exchanges back in April.Is that all ? Matthias Goldmann, Advisor to Constellation Labs thinks so. “My feeling is that this does not play into any other ulterior motives of the Korean government,” says Goldmann. “Just because fraud happens with a new technology does not make it legal to defraud people. The same criminal laws and justice systems apply.”
Eiland Glover, CEO of Kowala agrees. “Running a large, centralized, unregulated crypto exchange with thousands of daily transactions and billions in daily trade volume of volatile assets presents its principals with many opportunities to skim off the top. You could easily front run transactions, manipulate pricing data, misreport the crypto funds in customer wallets—the list is endless. A little number times a big number is a big number. If you could skim only 2 basis points per transaction, for example, you could purloin $100m for yourself on half a trillion in annual trading volume.”
That’s why government regulation isn’t a bad thing for cryptocurrency markets. “I don’t see this as a black and white situation for further crackdown but more for a reason that authorities regulate these exchanges in an ongoing way so that fraud is minimized,” adds Goldmann. “That means the more properly and mindfully the space in general but certainly in Korea is regulated the better and healthier it is for the whole ecosystem. So, generally I don’t see that as a negative thing.”
Why then the broad sell-off in cryptocurrency markets following the UpBit raid?
7d Performance of Major Cryptocurrencies
Number of Cryptocurrencies That Advanced/Declined In The Top 100 Ranks
Daniel Rice, CTO of Sagewise thinks that the market reaction is all about emotions. “There are a number of standard methods for analyzing the value of a traditional asset that do not apply to Bitcoin or other cryptocurrencies,” says Rice. “This makes price prediction speculative and often more emotionally driven as evidenced by the volatility we continue to see. News such as the Upbit investigation can move prices because exchange failures have crashed the market in the past.“
But news of government investigations can move cryptocurrency prices for another reason: they ignite fears that big governments are out there to destroy cryptocurrencies. For an obvious reason: they threaten their monopolies on printing money and earn seigniorage income