The South Korean central bank has sounded an alarm against the leveraged cryptocurrency trading, which is becoming popular among retail traders and might threaten the country’s financial system, The Korea Herald reported.
“An excessive level of leveraged cryptocurrency trading puts households at risk of financial damages considering the instability of cryptocurrency,” Bank of Korea Gov. Lee Ju-yeol said on Thursday.
“We expect (the increasing amount of crypto trading) to have a negative impact on the financial system in any respect.”
These statements also came with the rising household debts in the country, but it is not clear if that resulted from crypto trading.
Though the exact measures to be taken by the monetary regulator against leveraged trading are not clear, Lee has vowed that the Korean central bank will closely monitor the transactions related to leveraged crypto trading.
In addition, he signaled that the regulator might curtail new loans issued to crypto traders as the default risks might have a terrible impact on the banking system.
South Korea is not the first country to look at leverage trading as a threat. Earlier this year, the United Kingdom’s financial market regulator banned the retail sale of digital currency derivatives, citing a lack of knowledge about the risky investment products among traders.
The South Korean government is in the process of bringing heavy regulations to the local cryptocurrency industry. All local exchanges need to be registered to register as virtual asset service providers in the country by the end of September.
However, the toughest will be the access to banking services as exchanges need to maintain all clients’ accounts under real names. Most recently, three South Korean banks said that they do not want to work with crypto exchanges.
While four big crypto exchanges in the country are flourishing, several small ones are shutting services due to the lack of banking support and upcoming harsh regulations.