Today, South Korea announced a ban on initial coin offerings (ICO), the method through which many cryptocurrency startups raise funds. As reported by Reuters, the ban comes after the Financial Services Commission (FSC) in Seoul ultimately decided ICOs need to be controlled and monitored before being widely accepted.
The FSC’s concerns aren’t entirely unfounded. Cryptocurrencies have been used to raise a significant amount of money for legitimate operations this year, but they’ve also been used in phishing scams and other cyber crimes.
“Raising funds through ICOs seem to be on the rise globally, and our assessment is that ICOs are increasing in South Korea as well,” South Korea’s financial regulator wrote in a statement, adding that “stern penalties” would befall anyone that continues to issue ICOs. The details of those penalties were not revealed, however.
South Korea’s announcement follows a similar decision made by China earlier this month, though that ban may be temporary. The U.S., Canada, and Hong Kong have also issued warnings about ICOs, but none have outright banned the practice.
According to Bloomberg, digital currencies like bitcoin and ether experienced a small drop in price following the ban — 5.7 percent for ether and 3.5 percent for bitcoin — but both have already recovered.
Thomas Glucksmann, head of marketing at bitcoin exchange company Gatecoin, told Bloomberg a drop in value following such an announcement is to be expected, as traders in crypto markets would immediately turn to selling off the currencies.
“The majority of ICO tokens are being issued through the Ethereum platform,” he said. “At any sign of vulnerability, the first reaction would be a mass selloff in ether. That’s why the price of ether is susceptible.”
South Korea notes that the ban doesn’t mean it accepts the trading of cryptocurrencies within the financial market. For now, the nation will continue to observe operations to see what other regulations can or should be implemented. That said, it’s currently unclear how, exactly, the country would attempt to regulate crypto.
Disclosure: Several members of the Futurism team, including the editors of this piece, are personal investors in a number of cryptocurrency markets. Their personal investment perspectives have no impact on editorial content.