Investors in South Korea’s booming cryptocurrency market are facing a digital dust storm after a shocking revelation by financial regulators. A joint study by the Financial Supervisory Service (FSS) and the Korea Financial Intelligence Unit (FIU) found that a staggering 70% of shuttered crypto exchanges failed to return invested funds to their customers.
This news comes as a gut punch to over 6 million Koreans, roughly 10% of the population, who have dipped their toes into the crypto pool. Unlike their global counterparts, Korean investors are known to dabble in riskier, lesser-known cryptocurrencies in addition to established names like Bitcoin.
The report paints a grim picture of the industry’s practices. Many of these defunct exchanges didn’t even bother to warn users before pulling the plug, leaving them scrambling to salvage their investments. Even in cases where some form of notification was issued, the withdrawal process was described as an “extreme inconvenience” with a skeleton crew tasked with handling a potentially overwhelming number of claims.
The FSS is scrambling to shore up trust in the digital asset market. They’ve pledged to work closely with other financial watchdogs to develop stricter regulations for closing down financial firms, particularly crypto exchanges. They’ve also issued a stern warning to CEOs of digital asset service providers, reminding them to comply with the upcoming Virtual Asset Investor Protection Law, set to take effect in July.
The impact on crypto consumers has been severe. Many have lost significant sums of money, eroding trust in the market and highlighting the high risks associated with largely unregulated digital assets. The promise of high returns is undeniable, but the growing awareness of these risks is prompting many to reconsider their investment strategies.
Adding to the chaos, South Korean law enforcement recently arrested 19 individuals connected to a deceptive “crypto reading room” scam that defrauded over 300 investors of $19 million. Operating on platforms like Telegram, the gang posed as crypto experts to lure victims with promising tips and fake endorsements. They used fake apps linked to bogus exchanges, enticing victims with initial gains before imposing fabricated “withdrawal fees” and cutting off communication. The investigation also uncovered a disturbing recruitment tactic called “pig-butchering,” where victims were promised jobs in Myanmar but were forced into the fraudulent operation upon arrival.
