South Korea’s Financial Services Commission (FSC) has launched an investigation into Upbit, the world’s second-largest spot crypto exchange, over its monopoly in the market. The probe is raising concerns of a potential crypto market downturn.
On Thursday, the FSC said it would examine the concentration of South Korea’s crypto market, specifically Upbit’s partnership with K-Bank, which has increased the exchange’s dominance.
This announcement comes at a time when Bitcoin (BTC) and Ethereum (ETH) have already seen a sharp decline of over 2.3% in the last 24 hours.
The broader crypto market appears to be reacting to the heightened regulatory scrutiny, amplifying fears of another significant market crash.
Upbit and K-Bank’s Relationship Under Scrutiny
During a recent National Assembly audit, Democratic Party lawmaker Lee Kang-il raised concerns about Upbit’s partnership with K-Bank.
He highlighted that Upbit now holds 20% of K-Bank’s total deposits, equivalent to 4 trillion won ($3 billion). This concentration of deposits poses a potential risk of a bank run if Upbit’s operations are disrupted.
FSC Chairman Kim Byung-hwan acknowledged these concerns, stating that the regulator would assess the situation thoroughly. Lawmaker Lee also criticized K-Bank’s 2.1% interest rate offer for Upbit deposits, questioning its financial sustainability given the bank’s thin profit margins.
He argued that this close relationship violates principles of finance-industry separation and that the matter should be scrutinized before K-Bank’s upcoming initial public offering (IPO).
Upbit has been taking steps to bolster its regulatory compliance, such as preventing insider trading and adhering to the Virtual Asset User Protection Act (VAUPA). However, this investigation could have far-reaching implications for both the exchange and the broader South Korean crypto landscape.
Will the Investigation Trigger a Crypto Market Crash?
The last time Upbit was under scrutiny in 2018, the crypto market experienced a significant sell-off. With Upbit’s dominance now greater than ever, a similar outcome could unfold, especially given the current volatile market environment.
Bitcoin has already reversed from its recent high of $65,000, dipping below $61,000, while altcoins like Ethereum are facing similar selling pressure.
The timing of this investigation, coupled with rising global regulatory oversight, has led to increased anxiety among investors. Many are now waiting for the U.S. Consumer Price Index (CPI) data release for September, which could further influence market sentiment.
A less-than-expected rate cut by the Federal Reserve in November might add additional downward pressure on the crypto market.
Key Takeaways:
- Regulatory Scrutiny: South Korea’s FSC is investigating Upbit’s monopoly, raising concerns about market concentration and potential fallout.
- Market Impact: Bitcoin and Ethereum prices have already fallen over 2.3% amid fears of intensified regulation.
- Potential Crash: With Upbit holding a larger global presence than in 2018, the investigation could lead to broader market instability.
Investors should keep a close eye on developments as heightened regulatory actions and uncertainty could contribute to further volatility in the crypto market.
