Uproar as South Korea Plans Cryptocurrency Crackdown

SEOUL—Government attempts to tighten control over cryptocurrency trading are sparking a fierce public backlash in South Korea.

A petition on the official website of South Korea’s presidential office had collected more than 200,000 signatures by Tuesday morning, hitting a threshold that would compel a government response, which could mark the opening of an investigation. The petition, which was launched Dec. 28, had until Jan. 27 to reach the signature goal.

The grass-roots backlash comes after several weeks of concerted attempts by South Korean regulators to clamp down on bitcoin trading—floating ideas including taxation, increasing regulatory scrutiny and even an outright ban on cryptocurrency exchanges.

On Monday, South Korea’s government delivered its strongest statement to date about the dangers of trading bitcoin, warning the public to exercise caution.

“Cryptocurrency is not a legally recognized currency,” the statement said.

The remark came after South Korea’s justice minister said last week that the government was preparing a bill to ban cryptocurrency trading on exchanges, sending prices of bitcoin, the world’s most traded virtual currency, to fall more than 16% in two hours on South Korean exchanges.

Hours later on the same day, a presidential office spokesman walked that back, saying that abolishing cryptocurrency exchanges was only “one possible measure” that didn’t represent a “final” decision.

The petition, first uploaded last month by an anonymous person, calls on the Seoul government to stop trying to regulate bitcoin and thus stamp out the “happy dreams” of Koreans. The person would have had to clear the system’s verification system to post the petition, but his or her name wasn’t disclosed.

The petition credited gains in cryptocurrency values with restoring hope to South Korean people who could now aspire to buy their own property and find relief from financial distress.

South Korea’s slowing economic growth has led to job shortages, especially for young people, who are believed to make up a significant portion of the cryptocurrency investors. A survey conducted November last year by Bithumb, South Korea’s largest cryptocurrency exchange, showed that more than 60% of bitcoin investors are in their 30s or younger.

Widespread dissatisfaction over youth unemployment, which reached a 17-year high of 9.9% last year, was a major force propelling South Korean President Moon Jae-in to office in May 2017.

South Koreans “are not stupid,” the petition said, adding that people were investing in cryptocurrency because they saw it as a good investment for the future. The petition urged government officials not to base their judgment on a portion of investors who have seen big losses or those involved in illegal activities.

Signatories supported some of the government’s recent actions, such as calling for the verification of identities of cryptocurrency holders and some sort of taxation plan.

Starting last year, South Korea has a become a hotbed for global bitcoin trading. Roughly 4.5% of all global bitcoin transactions used the Korean won during the past year, making it the fourth most widely used national currency in bitcoin trading after the U.S. dollar, the Japanese yen and the euro, according to research site CryptoCompare.

Bitcoin is also priced consistently higher in South Korea than it is in foreign exchanges—sometimes by more than 50%—a phenomenon dubbed the “kimchi premium.”

South Korea’s presidential Blue House made a commitment to answer online petitions that gain more than 200,000 signatures within 30 days of its launch.

Since Mr. Moon came to power in May last year, the government has responded to two petitions that have met this criterion, including a recent petition calling for the abolishment of laws against abortion.