tl;dr
The high delisting rates of cryptocurrencies in South Korea have raised concerns about financial risks for investors. Over the past seven years, 34.9% of listed cryptocurrencies were delisted, with many failing to last more than two years. This trend is worrisome as it often leads to short-term pric...
SOUTH KOREAN INVESTORS SUFFER CRYPTO DELISTINGS
The high delisting rates of cryptocurrencies in South Korea have raised concerns about financial risks for investors. Over the past seven years, 34.9% of listed cryptocurrencies were delisted, with many failing to last more than two years. This trend is worrisome as it often leads to short-term price spikes followed by declining value and delisting. The regulatory gap in South Korea gives exchanges the power to list and delist cryptocurrencies based on internal criteria, contributing to market volatility and investor risks.
Factors driving delistings include speculative trading, lack of compliance with emerging legal standards, and the competitive environment among exchanges. While the initial boost in price following a listing might be appealing, the long-term outlook is uncertain, and investors are advised to thoroughly research before investing.
This trend is troubling for investors who may rush to buy new coins following a listing, expecting sustained growth. A typical pattern emerges where the coin sees a price spike soon after listing, driven by hype and enthusiasm, especially from retail investors. However, many cryptocurrencies fail to maintain their momentum and face declining value over time. Ultimately, they are delisted from the exchanges.
The problem is compounded by the fact that cryptocurrency listings and delistings in South Korea, like in many other regions, remain largely at the discretion of the exchanges. Although South Korea passed the Virtual Asset User Protection Act in July 2023, which aims to safeguard investors in the digital asset market, the law has not imposed clear standards for listings or delisting. This regulatory gap gives exchanges the power to list and delist cryptocurrencies based on their internal criteria. Trading platforms, including industry giants like Binance, list and delist tokens based on their own assessments.
Ultimately, this creates an environment where market volatility and investor risks remain high. Delistings, in particular, have devastating effects on the portfolios of investors. When an exchange delists a cryptocurrency, it essentially becomes inaccessible for trade on that platform. This leads to a steep drop in liquidity, making it difficult for investors to sell their holdings without suffering significant losses. In some cases, the delisted cryptocurrency might continue trading on international platforms. However, with much lower demand, its price is likely to plummet.
FACTORS DRIVING CRYPTO TOKEN DELISTINGS
For one, the South Korean crypto market is highly speculative. Investors often seek quick profits from short-term trading rather than long-term holds. As many newly listed cryptocurrencies do not have solid business models or technological foundations, they perform poorly after the initial excitement fades. Additionally, as new regulations loom globally, exchanges might delist cryptocurrencies that fail to comply with emerging legal standards. These include transparency in project operations or the proper management of user funds.
Against this backdrop, local media recently reported that the South Korean government has finalized a best practice plan for virtual asset transaction support. The plan outlined strict new requirements for listing cryptocurrencies on domestic exchanges. A stricter review process established by the authorities will supplement the current system, where exchanges conduct their own internal reviews.
However, despite regulators’ efforts, South Korean exchanges operate in a competitive environment. The race to list new and potentially lucrative cryptocurrencies has become intense. Exchanges know that new listings attract attention and liquidity, which are vital for their own profits. However, without strong regulatory frameworks to ensure that only viable cryptocurrencies are listed, investors are exposed to significant risks.
The high turnover rate of coins on South Korean exchanges indicates that only a minority of newly listed cryptocurrencies stand the test of time. South Korean investors need to exercise caution. Thoroughly researching the cryptocurrency’s project, team, and technological foundation before investing can provide some insulation against future losses. Nevertheless, the market is unpredictable, and there’s no surefire way to avoid the risks associated with investing in new cryptocurrencies.