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BoK says leveraged crypto trading poses a threat to the banking system

By:
on May 27, 2021
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  • Per Lee Ju-yeol, crypto volatility often leads to traders losing borrowed funds thus harming the system.
  • According to BoK, the nation’s unsettled household debt currently stands at £1.06 trillion.
  • Analysts claim that leveraged trading is also one of the biggest forces fueling BTC’s volatility.

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The Bank of Korea (BoK) has come out to warn that the increasing cases of leveraged crypto trading by South Korean citizens pose a significant threat to the country’s financial system. A report unveiled this news on May 27, citing remarks from BoK’s governor, Lee Ju-yeol, who spoke after a monetary policy committee meeting yesterday. Per Ju-yeol, the volatility of digital currencies makes the South Korean financial system susceptible to instability whenever leveraged crypto trading increases.

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According to the report, Ju-yeol intends to closely monitor the transactions of financial institutions that deal with leveraged crypto trading in the country. While he did not disclose what measures he intends to put in place to tackle this challenge, he could easily push for a reduction in the number of new loans issued. This is because an increase in defaults by borrowers could have detrimental effects on the entire South Korean banking system.

Ju-yeol further cited that the central banks and financial institutions need to work together to address crypto-related issues in the country. According to him, the vast liquidity in the low-interest environment encouraging more households to take out loans, mainly as a hedge against inflation when investing. To this end, the country’s unsettled household debt amounted to 1,666 trillion won (£1.06 trillion) by the end of March.

Traders taking high risks on BTC are fueling its volatility

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Similar to the South Korean banking system, BTC is also facing major instability as traders taking excessive risk in the unregulated crypto market are forced to sell when prices plunge. According to analysts, customers that use Asian crypto exchanges such as BitMEX have been using up to 100:1 leverage. As a result, they caused BTC’s 30% plunge in the past week as they lined up sell orders to pay brokerage firms back.

Meanwhile many South Korean exchanges are inching closer towards collapse as they continue working to obtain a business license that lets them operate as legal trading platforms. Reportedly, South Korea’s Financial Services Commission (FSC) needs the exchanges to join hands with banks and open real-name accounts for their customers before September 24.

Banks, on the other hand, have proven difficult to work with, seeing as they are afraid partnering with crypto exchanges would make them liable for crypto-related money laundering. At the moment, only four South Korean exchanges have managed to secure real-name accounts for their customers. These are Upbit, Bithumb, Korbit, and Coinone.

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