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A spokesman for the Supreme Prosecutors Office of the Republic of Korea said all 49 indictments in the fraud and virtual asset speculation case were submitted to the judiciary on July 25.
The investigation was conducted in cooperation with Customs and the Financial Supervisory Service (FSS). The main target of law enforcement agencies has been speculators who have been taking advantage of the so-called “kimchi effect,” when, amid a surge in domestic investment in virtual assets, their price in the domestic market surpasses the price in foreign markets.
The kimchi premium is the difference between the price of bitcoin on South Korean cryptocurrency exchanges and global ones (named after the local cuisine). Due to the closed nature of the South Korean financial system, market makers do not have the ability to arbitrage and equalize the price. As a result, there may be unrestrained growth of quotations on local exchanges. In early 2018, the figure was as high as 54%, after which the cryptocurrency market began to collapse. Amid the regulatory investigation launched in 2022 and the collapse of the crypto market, the size of the kimchi premium has plummeted. It was as high as 21.5% at the start of 2022, and by the summer it was down to 1.6%.
In August 2022, the Financial Supervisory Service directed the
regulators to examine the activities of a number of financial intermediaries providing services for the acquisition and sale of digital assets, and more importantly, the extent of their involvement in creating the “Kimchi effect”. The investigation was prompted by the massive withdrawal of foreign currency outside South Korea and the explosive growth of cross-border remittances.
The speculators sent virtual assets on paper for transactions on a cryptocurrency exchange, but in fact misled users and used the price difference for personal enrichment and illegal withdrawal of funds abroad, law enforcement officials said. According to prosecutors, the profits of speculators could reach between 3% and 20% of the amount of each transaction.
“We will take strict measures to ensure that national wealth does not leak out due to speculative trading in virtual assets, and that bona fide crypto investors are not harmed,” said a spokesman for the Supreme Prosecutor’s Office.
Earlier, the Major Cryptocurrency Exchanges Association of South Korea (DAXA) said it has launched a system that alerts crypto investors about abnormal price deviations of digital assets.