Bithumb and UPbit, two of South Korea’s largest crypto exchanges by volume, have recently started to delist, suspend, or flag many cryptocurrencies with investment warnings. Why?
On February 28, UPbit abruptly announced that it is delisting 17 cryptocurrencies. The primary reasoning behind the delisting of most crypto assets on UPbit was the lack of communication between the developers of the cryptocurrencies and the exchange.
As a general note on flagging cryptocurrencies with warnings, the UPbit team said:
“Due to difficulties in communicating with the project's tech team, there might be problems related to tech support. Liquidity is small, making the coin/token vulnerable to price manipulation. Therefore, to protect the investors, an investment warning has been issued.”
Bithumb also issued a statement after it designated several cryptocurrencies as “investment warning cryptocurrencies” due to similar issues.
The company noted:
“Bithumb has been designated and announced Populous (on January 16, 2020) and CyberMiles (on January 23, 2020) as Investment Warning Cryptocurrency in accordance with the [Bithumb Investment Warning Cryptocurrency Designation Policy]. Bithumb continued to monitor the eligibility for listing, but the reason for designating the investment warning has not been resolved.”
Since the start of 2020, both UPbit and Bithumb have prioritized quality control of cryptocurrencies listed on the exchange.
The two companies adopted a strict policy that places cryptocurrencies under consideration for delisting if the concerns of the exchange are not addressed by the developers of the cryptocurrencies under review.
For instance, UPbit has adopted a process of issuing an investment warning, reviewing a cryptocurrency for a week, and evaluating whether appropriate changes have been made. If UPbit decides that the issues have not been addressed, it terminates trading support for the cryptocurrency.
“After issuing an investment warning, Upbit thoroughly reviews the crypto-currency for a week to decide whether or not to delist the crypto-currency. If the reasons for getting the investment warning are not fully resolved during the period above, Upbit will make a separate announcement to notify the termination of support on trading,” the company said.
Many factors are considered when placing a cryptocurrency under review for a potential delisting process. So far, UPbit and Bithumb have mentioned the following reasons for delisting:
1. Lack of intent of cryptocurrency developers to communicate with the exchange to resolve issues
2. Lack of understanding of the South Korean cryptocurrency market
3. Lack of developer activity
4. Lack of volume and overall demand from local investors
5. Exposure to market or price manipulation
So what does this mean for the Korean crypto market? It could be a positive step. Comprehensive quality control by top exchanges could set a precedent across the sector that cryptocurrencies with subpar standards or that do not provide sufficient support to exchanges are not safeguarded from being delisted.
The higher standards adopted by UPbit and Bithumb create a more practical environment for both investors and exchanges, as they filter out cryptocurrencies with relatively low demand, volume, and developer activity.
Is this part of a wider trend?
The timing of the quality control of cryptocurrencies on UPbit and Bithumb coincides with the call by the G20 to adopt the Financial Action Task Force (FATF)’s new cryptocurrency guideline.
FATF, a financial watchdog under the G7, asked member countries of the G7 and G20 to strengthen anti-money laundering (AML) and terrorist financing prevention policies for crypto exchanges. It is possible that in response to the encouragement of the FATF to implement stricter regulatory frameworks, exchanges started to act proactively in creating a safer trading environment for investors.
In 2020, Hong Kong, Switzerland, and Japan have adopted the guideline created by the FATF, imposing stricter policies regarding cryptocurrency exchanges and transactions. But while Japan has been very strict about new listings, it hasn’t followed South Korea’s lead in actively removing tokens.