Episode #2: Korean Crypto-Mania and the Kimchi Spread
By: Coin Talk
Tags: Investing, Korea, Cryptocurrency, Ethereum, Bitcoin

Transcript (48 Minutes)

Robot: This episode of Coin Talk was taped Monday, January 15th at 11:00 am Eastern Standard Time. The Bitcoin price index was $14,066.

Aaron Lammer: Welcome to Coin Talk. How was your weekend?

Jay Kang: Not bad. How are you doing?

Aaron Lammer: I had a pretty good weekend. I was highly entertained, and it seems like many people were highly entertained by the crypto … Was it a Cypto Styles story that the Times published? Was that Styles?

Jay Kang: Even if it wasn’t in the Styles section, it was definitely a Styles story.

Aaron Lammer: It was Styles-esque. It was in the style of a Styles story and written by Nellie Bowles about some of the crypto elite of San Francisco and what they are doing or not doing with the millions, perhaps billions they have acquired. I always wonder about this kind of stuff. I always wonder what becomes of the person who buys $400,000 worth of Ethereum (ETH) at 80 cents, what’s the trajectory of that person’s life?

Jay Kang: Yeah. We at least know the trajectory of three of those people’s lives or four of those people’s lives, which it seems to be that what you do is you sort of live this fraternity life in which you buy a house, you give it some silly name, like the Crypto Mansion or the Crypto Crack House I think one of them is. You have your friends move in, and then all of you sort of talk. It’s sort of like Jake Paul and Team 10 or something like that.

In the early days of online poker, I remember there were houses in Las Vegas that would have a whole bunch of sort of good, young, online poker players living together. They would go out to the club together and throw money around. I don’t know. Maybe this is just like a compulsion for young men who become rich, very rich very quickly is that you have to just live with a bunch of other young men.

Aaron Lammer: I think part of what I brought up, you’ve covered young men, primarily men who have gotten insanely rich in limited periods in their early 20s, because you’ve covered poker pretty extensively.

Jay Kang: Yeah, yeah. Look, I guess this is where I need to put in a little disclaimer. I know Nellie Bowles, the author of the piece and I work together at Vice News Tonight. I have a New York Times email address, so I don’t actually know what my official employment status there is, but I’m a writer at large with magazines. If I seem a little restrained, that’s why. Look, this is a type of story, right?

Aaron Lammer: Yeah.

Jay Kang: There is a type of story when young people are getting rich really quickly off something that everyone else thinks is going to come and up in tears, as it actually did, and they’re all right about online-

Aaron Lammer: To quote Warren Buffett, “It will end badly.”

Jay Kang: It will end badly. Online poker did end badly for most people. 2011, the first piece I actually wrote for the magazine was about a young man named Dan Cates who goes by Jungle Man. He’s actually still a successful poker player. It was the same thing. It was like this kid has made millions of dollars playing online poker. He does not know what to do with the money. He has several million dollars on a full-tilt … Not anymore, but at the time, he had several million dollars just on a full-tilt poker account. I watched him lose I think $800,000 in a couple hours, and he didn’t care. The only thing he could think to do with his money was to go to the Cheesecake Factory every day and order a filet mignon, which we did two or three times.

Aaron Lammer: There were several details which just captured my imagination. One, the threat of kidnapping that if you’re holding millions and millions of dollars of Ethereum-

Jay Kang: I have a question for you.

Aaron Lammer: Yeah.

Jay Kang: If you are really afraid of being kidnapped because you have so much Ethereum, then why are you in a New York Times article with your picture in it?

Aaron Lammer: No comment. No comment.

Jay Kang: If that guy walked into this room right now, I’d be like, “Oh yeah, you’re the guy from the New York Times article, and you’re really, really rich.” It’d be so easy to spot.

Aaron Lammer: You think we could shake him down, is that what you’re saying?

Jay Kang: No, I’m just saying that there are many people in my life who if they walked into this room, I would forget who they were. That guy I would spot. I don’t quite get the, “I’m really afraid of being kidnapping, but sure, New York Times, here’s my photograph. This is my name, and actually, this is where my house is,” you know?

Aaron Lammer: Yeah, yeah. I assumed that people who are really big whales, and maybe this doesn’t apply if you’re holding less mainstream currencies than Bitcoin, but people would put them into … There’s a storage facility called Xapo where you can basically put Bitcoin into cold storage. I think there’s like a two week freeze on moving it at all. At least someone would have to kidnap and hold you for two weeks before they would be able to get at your Xapo storage.

Jay Kang: Yeah. Look, being kidnapped and having a person not steal your Ethereum is certainly better than being kidnapped and having a person steal your Ethereum, but being kidnapped also sucks.

Aaron Lammer: Yes, I would imagine so.

Jay Kang: Xapo does not sort of … It doesn’t cancel out the first part of it. You’re still going to get kidnapped, if you’re going to get kidnapped.

Aaron Lammer: I am pretty fascinated by this whole cold storage issue and this where are you actually going to put all of this wealth issue. The thing that I will be looking at going forward is what do the people who become millionaires and eventually billionaires from crypto do with that money? Do they recirculate it into the system? Does it lead to new development? Or does it get put into some sort of private utopia in Puerto Rico that we should definitely visit at some point?

Jay Kang: I think they’ll basically just do whatever Libertarianism tells them to do. I feel like there will be a lot of bunkers built in New Zealand regardless.

Aaron Lammer: Yeah. If you’re in the prepper industry and you’re not taking Bitcoin right now, you’re missing an opportunity.

Jay Kang: That’s certainly true. There’s another bit of news this week, I think. There is now, or at least I think this band has existed, but in the United States we started hearing about this band from Japan called Kasotsuka Shojo, which translates into the virtual currency girls, right?

Aaron Lammer: I like that you say that you’ve heard of it like, “Hey, have you heard that new single by the Virtual Currency Girls?”

Jay Kang: Yeah, like I was trying to do a nice tease here.

Aaron Lammer: Wait, what’s their song called again?

Jay Kang: Their song is called “The Moon, Cryptocurrency, and Me”, which sort of sounds like a Siouxsie and the Banshees type of song. It’s a little bit goth, but I think that is sort of the style of a lot of these J-pop bands right now.

Aaron Lammer: Yes.

Jay Kang: Do you want to hear a little bit?

Aaron Lammer: Yeah, play a little bit for me.

[MUSIC]

Jay Kang: A little bit more about this band, and you tell me how you feel about it. There are seven members of the band. They all wear sort of these Lucha masks so you can’t see what they are, or Power Ranger masks. They’re all different colors. Each one represents a cryptocurrency. What I want to ask you is whether you think this cryptocurrency deserves to have a member of this band represented as one of them?

Aaron Lammer: I was going to say any time that you have to make a list of under 10 cryptocurrencies, you’re going to get some angry Twitter comments.

Jay Kang: Yeah, yeah. I want you to be angry.

Aaron Lammer: Okay.

Jay Kang: I want Twitter to also weigh in on whether or not these deserve it, all right? The first is Bitcoin.

Aaron Lammer: You’ve got to have Bitcoin.

Jay Kang: You got to have Bitcoin.

Aaron Lammer: Bitcoin is the leader of the group. Bitcoin’s the front woman?

Jay Kang: I don’t know the answer to that, but I think that they’re sort of a collective.

Aaron Lammer: Sure, okay.

Jay Kang: Number two is Ethereum. We can all agree that Ethereum needs to be there.

Aaron Lammer: Ethereum is a putt.

Jay Kang: From there on, it actually becomes a little bit more interesting.

Aaron Lammer: Yeah, it becomes a little more interesting.

Jay Kang: All right. Ripple (XRP). Do you feel like Ripple should have a Virtual Currency Girl?

Aaron Lammer: No one every said this was a decentralized J-pop band, so I think it’s okay for Ripple to be-

Jay Kang: It’s okay to have Ripple?

Aaron Lammer: Look, the people come to see Ripple.

Jay Kang: That is true. That is true. I feel like Ripple will put the butts in the seats. Even if it’s not the people that you necessarily think are cool, they’ll pay for tickets.

Aaron Lammer: I predict Ripple is going to do a robust merch business.

Jay Kang: Bitcoin Cash (BCH).

Aaron Lammer: That’s a question. If you get jumped into this group and you end up being like, “Hey, I’m Bitcoin Cash,” that’s the worst one to get, because they’ll be like, “Oh, you’re Bitcoin?” You’re like, “No, no. I’m Bitcoin Cash.”

Jay Kang: Yeah, and I also feel like in the hierarchy of the band, that it would be terrible to be the Bitcoin Cash girl.

Aaron Lammer: Yeah. All right. That one was still, by market cap, acceptable.

Jay Kang: You’re okay with Bitcoin Cash?

Aaron Lammer: Where do we go from there? I’m okay with Bitcoin Cash.

Jay Kang: All right. Neo (NEO), which has been skyrocketing recently.

Aaron Lammer: Popular in Asia.

Jay Kang: Popular in Asia. Okay.

Aaron Lammer: Which we’re going to be talking about.

Jay Kang: Ticket sales will be fine in Asia. Next is Cardano (ADA). I feel like this one is the most …

Aaron Lammer: I feel like Cardano must have paid like 100 grand to get included in this group.

Jay Kang: All right, so if Cardano, which is another huge market cap, huge circulation type of coin, if Cardano isn’t there, then who are you going to replace it with?

Aaron Lammer: Look, if you’re asking me, you know that there would be a Monero (XMR) in the mix, if it was me.

Jay Kang: Yeah, so that’s the one where I feel like they … Look, okay. So spoiler, they do not have a Monero. I feel they really-

Aaron Lammer: I feel like the Monero one would be the rebel one too.

Jay Kang: Exactly.

Aaron Lammer: It would be like-

Jay Kang: Or you can at least put them in some sort of mysterious costume, like they’re always doing something weird in the corner. Exactly, they’re the rebel one.

Aaron Lammer: They’re like a dark, they’re an assassin kind of character.

Jay Kang: Either that, or they don’t talk. They’re always silent standing at the stage. You’re like, “What is Monero going to do?” I don’t know. I just feel like that’s a missed opportunity. Next is MONA (MONA).

Aaron Lammer: Don’t know much about MONA Coin.

Jay Kang: Yeah, me neither, so let’s just assume that they have their reasons.

Aaron Lammer: Yeah.

Jay Kang: XEM (NEM).

Aaron Lammer: That’s XEM, aka, NEM, which is the company, and that’s another thing I don’t really know about. Okay. Shall we call up Nathan Park here?

Jay Kang: Yeah, let’s do it.

Aaron Lammer: Just to give a little background here, one of the first … I believe the first crash I ever experienced, I don’t even remember, but it was due to some sort of a Korean regulatory statement that was mistranslated or properly translated and then claimed to be mistranslated. I would say that of all of the crypto crashing, nothing gets them going like a little Korean FUD (Fear, Uncertainty, and Doubt).

Jay Kang: Yeah, I think that the sort of interpretation of what’s happening in Korea around the world really drives a lot of the sort of momentary crashes that you see. If there is a … Really, you can see this correlative effect where if there is a tweet that goes around that seems very credible that’s retweeted a lot, you can see the volume start spiking on the sales side. Nobody actually knows what’s going on. I would say that I’ve read several articles about crypto in Korea, and I am Korean, and I have my dad sometimes-

Aaron Lammer: Disclaimer.

Jay Kang: Yeah, I have my dad sometimes read the papers for me to try to … I don’t know what’s going on, so I thought that what we should do here is-

Aaron Lammer: Can we get your dad to come on the show and discuss Korean FUD?

Jay Kang: My dad has no idea what’s going on. He said he’ll buy Bitcoin when it crashes down to 3,000, which he might be right. I thought the best service that you and I could do, because this is a public service podcast, would be to call somebody who actually can answer these questions for us.

Aaron Lammer: Absolutely. I think there’s some larger questions I have, which I hope we can talk about, which is why is crypto so popular in Korea? Why does Korea play this huge outsize role in crypto?

Jay Kang: Yeah.

Aaron Lammer: All right, let’s give him a call.

Jay Kang: Okay.

Aaron Lammer: Hey, Nathan. What’s going on?

Nathan Park: Hey, how are you guys doing?

Aaron Lammer: Good. I’m very excited to talk to you.

Jay Kang: I think that there’s so much unknown here in the United States and even just around the world in Europe as well about what crypto culture is like in Korea and why it trades in such high volumes, why so many people seem to be into it. If you could characterize the culture around cryptocurrency there, how would you describe that?

Nathan Park: The wild west, and it’s kind of a mania right now. All around the world, crypto is kind of going through this high phase, but it’s another level in Korea where cryptocurrency exchanges now have sort of mainstream advertisements on the side of buses, for example. There’s a major exchange called Coinone. I was there just a couple months ago. I was just trying to catch a bus. On the side of it, there’s a big advertisement for, “Hey, trade your Bitcoin on Coinone,” sort of advertisement. There’s television advertisements with major celebrities. That’s not a level that the US is at or anywhere else in the world is at just yet.

Aaron Lammer: Why do you think Korea went crazy for crypto?

Nathan Park: I think there are two fundamental reasons. One is sort of economical, and the other I might say is sort of the investment culture of it. The economical reason is actually fairly simple. Korea is next to China. Korea and China do a lot of business with each other. Chinese people always need a way to sort of get their money out of their country, because it’s so highly regulated. Crypto is a good way for them to get money out of their country. They’re already familiar with Korea, and Korean government has been somewhat slow in trying to regulate cryptocurrency, which made it a very sort of good platform for Chinese cryptocurrencies that are mined. Recall 70% of Bitcoin is mined in China and needs to be sold somewhere. They just find it convenience to have it sold in Korea. That’s one reason.

The second reason is that Korea really is sort of a digitally savvy country. It was one of the first countries that entered into this broadband era of the internet. They also have a big population of young people who are digitally savvy, first of all, and sort of looking for jobs. The economy has been a little sluggish, and they have, unlike, say, the United States, Korean people remember the time when the bank interest was 20, 30% back in the 1980s back when Korea-

Jay Kang: What?

Nathan Park: … Korean economy was going through some incredibly growth. Literally banks-

Jay Kang: That’s incredible.

Nathan Park: Yeah. Literally banks, the APR was 30%. You just put your money in, and one year later, the bank would give you 30% in interest, and that was normal.

Jay Kang: I heard that that was true in Mongolia. At some point during one of my attempts of some way to try and scam more money. I was trying to figure out ways to get money into a bank in Ulaanbaatar, but it was too risky.

Nathan Park: Right.

Aaron Lammer: Is the fact that Korea is such a connected country, where you have blazing fast mobile speeds, really just far, far faster grid than the United States, does that play a role in the growth of crypto?

Nathan Park: It does. It does. It sort of does it in a very sort of direct infrastructural way, but it also does in a way of making people comfortable about technology and, “Oh, okay. Here’s this new thing. Well, we’ve dealt with new things for a while. Let’s try out the new things.” They are less afraid of dealing with something new, in terms of technology.

Aaron Lammer: I know Jay’s visited Korea before. I’ve never been.

Jay Kang: I was born in Korea.

Aaron Lammer: Jay was born in Korea, but this stuff moves so quickly. Even if you want to Korea three months ago, it was probably in a different state. The fact that Korea is, I think, the highest crypto saturation per capital, are people buying sandwiches, train tickets? On a sort of a practical level, is crypto usage … I think a lot of people in America are waiting for the point when people are buying stuff on their phone. That is when a certain point will be tipped. What are you seeing in Korea, in terms of actual usage of crypto?

Nathan Park: None. None. That’s the short answer. In Korea, the crypto mania is there, but it is almost exclusively as a means of trade rather than use as currency. I think you’re right. Everybody is sort of waiting for that moment, but as far as I’m concerned, I’ve never really seen that. Korean people treat it as if it’s a gold bar, basically, that rises or falls in value. The same debate about whether a cryptocurrency is a real currency, that same debate is raging currently, but all the attention is pretty much focused on the rise and fall of the value rather than using that as currency.

Aaron Lammer: I read that article. I don’t remember where it was a couple years ago about Korean student trade investing groups where people are getting crazy into crypto.

Jay Kang: It was in Zero Hedge.

Aaron Lammer: Yeah, it was in Zero Hedge … Okay, I actually did remember it. I just didn’t want to say. It was in Zero Hedge. It was a great article. I’ll link to it in the show notes. I was wondering are those kids going to use Bitcoin like Venmo? Are they going to pay each other back for pizza with crypto or anything like that? It sounds like no.

Nathan Park: No. The answer is no. These things are happening, and I think it’s a little dangerous for … I’ve read reports in Korean news about high school students getting into this type of stuff. I’m not sure if it’s entirely healthy. Even those instances, they’re not using it as a means of exchanges. They’re using it as an investment.

Jay Kang: One question I had, which was we just had this article in the New York Times here, not about Korea, but about American crypto culture. It ends with a sort of anecdote about this old woman who was a housekeeper who has put money into crypto. What sorts of people are investing in crypto in Korea? Is it like every single person? Is it old people, young people, or is there a certain sector that has gotten heavily into this?

Aaron Lammer: I feel like I read a similar thing about a guy in Korea, actually, who had lost all his money in the stock market and just had a little bit left and was like, “I’m putting it all in crypto and trying to bounce back.”

Nathan Park: Right, right. It is super interesting, actually. Anecdotally, there are all kinds of crazy stories about these grandmothers trying to invest in this or that. Anecdotally, these stories are all there, but there was a very interesting poll by a local polling company that actually broke down cryptocurrency trading by age, sort of their political preference, even where they live within Korea. It is mostly people in their 20s and 30s. A lot of them students, I presume college and graduate students, or sort of day laborers, which I thought was really interesting. About 20% apparently of sort of day laborers are into this. You can sort of see how this is more resembling of a lottery ticket for people, rather than a meaningful investment activity.

Jay Kang: A lot of the talk recently has been around regulations. There has been a lot of news stories that have sort of caused a lot of fear amongst the worldwide Bitcoin community that Korea was going to ban crypto trading now. I never really believed that, because I felt like if Korea has a lead in anything, they tend to press that lead. They seem to have a lead in understanding and sort of adoption of cryptocurrency. Where is the fear from the government coming? What are they worried about? Because look, obviously cryptocurrency is very dangerous, and governments should be worried about it, but what specifically is the Korean government worried about that was generating these stories?

Aaron Lammer: If you’re an American in crypto, I feel like I’ve been in crypto for six months, and the Korean government has already banned crypto eight times.

Jay Kang: Yeah, the news has …

Nathan Park: They said they might consider banning it about eight times. Every time that news comes out, the market jolts a little bit.

Jay Kang: What are they worried about?

Nathan Park: They’re basically worried about sort of the same two things that I identified earlier. One is that this is really turning into a type of speculation where people are starting to literally just get a loan and put in all their money, price drops, and they get hosed. It’s just like any other issue involving gambling.

Jay Kang: Yeah.

Aaron Lammer: Yeah, sub prime lending..

Nathan Park: Exactly. I should really add when I say wild west, I really mean that, because if these tokens were stocks, what goes on is that if these tokens were stocks, about 90% of what’s been happening in Korea would be illegal, as in the exchanges are … You can see that they exchange and do all these things, like pump and dump or they call this thing a market making which is basically they enter into all these meaningless trades just to sort of pump up the volume for this trade.

Jay Kang: Yeah, yeah. Wash trading.

Nathan Park: Yeah, exactly. Doing wash trading to pump up their own exchanges. There are pretty credible allegations of insider trading. The Chinese money laundering aspect of it is pretty significant, because South Korea, it’s very, very … The financial authorities in Korea are very, very sensitive to the dollars reserved that they have. That sort of traces back to the East Asian financial crisis that happened in ’97 when the dollar reserves suddenly ran out and the whole economy went down in the 2008 style. Korea is very concerned about their dollar reserve. These Chinese people selling their Bitcoin and getting their money out of Korea, it started to impact South Korea’s dollar reserves. They’re all concerned about that.

Jay Kang: The sort of dream scenario, I think, or the nightmare scenario for a lot of people with Bitcoin is that it will actually crash an economy or a sort of major economy. When people, I think, bring up that example, a lot of them do bring up Korea, because it is such a prosperous economy right now, but it is so sort of linked into crypto.

Aaron Lammer: Especially if people are taking out loans to buy crypto. It’s a domino possibility.

Jay Kang: There is this sort of history with the IMF crisis that there have been these sort of large crashes in that country that have really had massive effects. Is there a possibility that crypto in Korea is going to sort of lead to a 2008 here in the United States, like a massive market crash?

Nathan Park: If left unchecked, I think it’s possible, because when you look at the volume of the money being traded, it can’t possibly be entirely domestically sourced. Korea’s a wealthy country, obviously, but the volume of trading is far beyond what the Korean economy could support, which means a lot of foreign investors must be there. When they pull out, it will crash the Bitcoin price. All the local Koreans who have money in the form of Bitcoin would be killed. It is a legitimate concern.

Aaron Lammer: Is that Chinese? Where is most of that foreign money coming from?

Nathan Park: Most of that would be Chinese, yeah.

Jay Kang: The fear would be then, just to put a fine point on it, not that we need to, but the idea would just be that large, large, large scale Chinese investment are washing money out of China through Korean cryptocurrencies, pulling the money out in the Korean Won, and then moving that Korean Won out of Korea in a large enough volume where it’s alarming to sort of the currency reserves. That’s sort of the nightmare scenario for them.

Nathan Park: Right. The nightmare scenario is that they would try to exchange their Korean Won into US dollars and getting it out of Korea, in which case it would destroy the foreign exchange ratio in very quick succession.

Jay Kang: For people like me who are not Chinese billionaires, that’s actually very hard to do, right? There are strict limits in the amount of Korean Won you can take out of the country, even on an airplane in a bag. How are these Chinese investors are getting this money out of Korea?

Nathan Park: What they will do is right now there’s a small scale that’s happening already where there are Chinatowns in Korea. They literally are exchanging cash into bags and taking it out in bags. This is happening already at large enough scale that it’s pretty alarming. Then that’s sort of a more physical way, I suppose, but because there’s so much trade between Korea and China, there are enough ways for creating companies to sort of pad their books and say, “Oh, okay, here’s a charge for we sharpened your pencils extra hard this month. Here’s another $2 million in exchange for that,” and there’s a back deal about sort of a fee that you will take based on having the external amount of money sent out.

Aaron Lammer: I think there’s a question a lot of people have, a real simpleton question. Right now it’s trading in America for about $14,000 and about $18,000 Korea. What is stopping me from buying a coin on Coinbase for $14,000, sending it to Bithumb and selling it for $18,000 on Bithumb? Are people doing that?

Nathan Park: Yes. Oh absolutely. There are all these people who think they’re clever and do the sort of-

Aaron Lammer: How can I do that?

Nathan Park: No, there are companies that do this. There are companies that do sort of a double arbitrage where they buy in both KRW and USD. There’s an arbitrage between sort of the FX arbitrage, the foreign exchange arbitrage. There’s arbitrage between the Korean exchanges and the US exchanges. They can sort of do this double arbitrage of FX linked to Bitcoin exchanges.

Jay Kang: Isn’t that difficult? Because I know that to start a … Look, I’ve thought about it, having parents who lived … I was born in Korea, and my parents lived there pretty recently. I was like is there a way that I could use a Korean bank account that my dad used to have, put it in his name, send my Bitcoin to Korea, and then transit … I looked into it, and it was almost impossible for a person like me, who is completely unconnected, to do, but is certainly more connected than Aaron.

Aaron Lammer: When Jay started telling the story, I pictured him dressing up and dyeing his hair, and going to Korea as his father to get the money out of-

Jay Kang: Yeah, yeah. Exactly. We also have a close friend, Doug Kim, who is going to be on this podcast who once loaded up a ton of Bitcoin onto hardware drives, flew to Korea to try and sell it in person to try and arbitrage this stuff. He had a hard time as well.

Aaron Lammer: It’s like when Kramer drove all of those recycling bottles to Michigan.

Jay Kang: Yeah, yeah. Exactly. It was like the Michigan 10 cent recycling thing. Is this difficult to do, or is it easy to do to do the arbitrage? Because I think it’s the first thought that goes into everyone’s head when they see this spread.

Nathan Park: Well first of all, what you just described would be in violation of KYC laws.

Jay Kang: Really, dressing up as my dad?

Nathan Park: I know. I know.

Aaron Lammer: As your attorney, I have to advise you not to do that.

Nathan Park: As an attorney, I have to advise that pretending to be a different person is in violation of a KYC rule. Look, especially with the KYC rules, a lot of Korean banks will just give you a fairly practical limit on their own as to how much money you are able to invest out of their bank account just to limit their exposure. You are reduced to essentially carrying suitcases full of money in order to have this happen. There will be a lot of practical constraints as to how this could happen. You will need a pretty … I won’t get into sort of the mechanics of how these companies manage to do these double arbitrages, but it takes a lot of infrastructure to actually pull it off.

Jay Kang: Is there a black market though? I assume there is, because it’s such a big deal over there and that it’s so hard to deal with financial exchange stuff. Could I just bring some Bitcoin over there and sell it at, let’s say, instead of a 20% premium, like, “Look, you can keep the 2%. Just pay me in cash, and I’ll strap it to my body.”

Aaron Lammer: It doesn’t require the hardware.

Jay Kang: I’m not going to do this, but is that possible?

Aaron Lammer: I don’t even see why it needs the hardware. You could do this just by transferring the Bitcoin.

Jay Kang: Yeah, exactly. You could just say, “Here it is. Here I am. Let’s put these 20,000 Won notes on my body here.” Is that happening right now?

Aaron Lammer: Jay just wants to fly with Wons strapped to his body.

Nathan Park: I am absolutely not getting into it, Jay.

Jay Kang: I’m asking for a friend. All right, well hey, do you have any more questions?

Nathan Park: Exactly.

Aaron Lammer: I had one more question, when you see these announcements that get widely reported in the US, and I assume you’re following both the Korean media and the American media, how do they differ when you see them on both sides of that divide?

Nathan Park: The facts are all the same, but I guess it’s sort of the tone and characterizations that are slightly different. I think the US investors don’t quite understand how Korean government makes policies. Korean government-

Aaron Lammer: Americans don’t even understand how Americans make policy, much less Koreans make policy.

Nathan Park: That’s a good point. That’s a very good point.

Jay Kang: Yeah, I honestly have no idea.

Nathan Park: In the financial sector, there are several ministries, several departments in the parliament, several departments that could conceivably assert jurisdiction over the … Ministry of Justice is one, the Financial Supervisory Service is another one. Each department basically is trying to sort of get a handle on how they want to regulate it. The Ministry of Justice is sort of more hard line on this point. They said, “You know what? Forget all this. Ban them. End them all.” The FSS is saying, “No, no, no. Let’s see if we can find a way to bring this into a more mainstream economy and regulate it properly. Each time they are sort of making a public comment on this, what happens is investors outside of Korea see this, and they don’t read closely enough which department is saying what. All they sort of …

Aaron Lammer: Oh yeah, yeah.

Nathan Park: Yeah. All they’re seeing, “Oh, Korean government wants to do X. Oh, tomorrow, Korean government wants to do Y.” No, different departments are saying these things as a matter of sort of exchanging their views. Then it’ll all by synthesized down the line and there will be a loll path, and that will be the regulation.

Jay Kang: That makes sense. That’s like if someone was in Korea and wanted to know about the American marijuana market and Jeff Sessions said, “We’re going to ban all weed,” and they said, “Oh yeah, the US government has decided to ban all weed.” That’s their version.

Aaron Lammer: Right, and they’ve sold off their investments in California marijuana dispensaries.

Jay Kang: Yeah, yeah, exactly.

Nathan Park: Right.

Aaron Lammer: In a way, these different branches of Korean government are in a dialog with each other.

Nathan Park: Mm-hmm (affirmative). That’s correct.

Aaron Lammer: Generally what you hear about in America is ban, ban exchanges, ban crypto. Is there any voice saying, “Hey, we are the world leader in crypto right now. We have the population that’s embracing it at the highest per capita levels. We should embrace this and become, if the world’s going crypto, we should just embrace it as a government and become the crypto country.”

Nathan Park: There are certainly voices that say that. Less so within the government, but plenty of people sort of outside of it, prominent politicians. I guess politicians are still part of the government, but by government I’m talking about bureaucracy. Prominent politicians have been saying that certain academics say that. My understanding is that I think the prime minister recently expressed this position where we may regulate cryptocurrency. We may even ban it, but that will be sort of a separate process from Blockchain technology. We understand the potential of the Blockchain technology, and we will foster that, but that will be a separate thing from cryptocurrency, which I think is a sensible position.

Aaron Lammer: We see these prices on the Korean exchanges, and this is often something that American media would cite also. They’d be like, “Bitcoin broke $20,000 on Korean exchanges.” Why is I think pretty much all cryptocurrencies trading at such a premium on Korean exchanges?

Nathan Park: Right, because that’s where so much volume goes through from China. That kimchi premium,, I guess, really is that. It’s premium done by volume, premium created by volume. We’re talking on January 15th. I don’t know when this will air, but last Friday, there was a massive crash in the Korean exchanges that essentially sort of … It didn’t quite eliminate the kimchi premium, but it was nearly gone. There was a massive adjustment.

Aaron Lammer: That adjustment, at least in the United States, was reported as basically we have these CoinMarketCap prices that had used Korean prices and removed Korean prices, which made the prices to appear lower, which triggered a sell-off, or that’s how it was at least covered here.

Jay Kang: Yeah. I found that explanation to be absurd, but Nathan, I’m interested to hear what you have to say?

Nathan Park: I think this is in my job. I look at it pretty closely. Even still, it’s tough to figure out exactly what causes sort of this massive crash that wipes out billions of value in a moment.Before I was involved in this sector, I was involved in sort of flash crashes in other securities. Even that, people can’t quite figure out what causes flash crashes. Some people say, “Oh, there are speculators who are causing this to happen,” or, “Oh, it’s a glitchy system of some kind.”

Aaron Lammer: Automated trading bots often times.

Nathan Park: Yeah, automatic trading bots of some kind. The truth is, no one truly knows. Just to prevent that little thing, there are so many devices, both technological and legal that come in to prevent that type of crash from happening to make the investment a little more transparent and a little more predictable. When it comes to cryptocurrency, there’s no such device, both legally and technologically. That, honestly, in my view, is quite dangerous.

Jay Kang: The last thing that we want to end on, and look, this is where I want to remind the listeners that you are somebody who does talk pretty regularly to Korean government officials, that part of your work is in regulation of markets across the United States and Korea. Is that right?

Nathan Park: Mm-hmm (affirmative).

Jay Kang: That you are the closest that we know of an expert on all this, but at the same time, to also say that nobody can really predict anything that happens in crypto. All that said, what do you think these regulations will actually be? Because there was a statement put out this morning in US time that basically said, “There are regulations that are coming.” One thing that we know is that they’re going to do these KYC, Know Your Customer laws, but what else is going to come?

Nathan Park: Right.

Aaron Lammer: Yeah, what should we expect from Korean crypto in 2018?

Nathan Park: Right. Okay, so I’ll add a disclaimer in my own voice and say that none of this is investment advice.

Jay Kang: Yes, you are a lawyer.

Nathan Park: Yeah, but in my view, this has become a sort of major priority in the Korean domestic policy making. In 2018, you will see a major policy and some level of major regulation. There’s already the KYC element to it, which is a pretty strict and significant thing, as in you can only trade in real names. That’s on-

Jay Kang: Is that to limit out some of the Chinese money laundering do you think?

Nathan Park: That is certainly the case. The KYC element is there to prevent money laundering basically, and just by strictly implementing the KYC regulations means that a lot of the incentives to trade through Korea will be gone now, because the reason why there was so much volume in Korea was to do money laundering. I expect the KYC rules to be implemented pretty strictly. I do think that a pretty … A shutdown of all exchanges is a possibility.

Jay Kang: No.

Nathan Park: Its a possibility.

Aaron Lammer: That’s the only pull quote. We’re going to make that the pull quote for the episode. “Episode two: Shut down of all exchanges is a major possibility.”

Jay Kang: Expect some angry emails. I would pull my email from all public. If you have your email listed, pull it out.

Aaron Lammer: Nathan Park says, “Exchanges have been shut down.”

Jay Kang: Here’s his email.

Nathan Park: No, please don’t. I do know that it is in the cards. It is an option that the Korean government is considering very seriously. I don’t know if they will actually do it.

Jay Kang: So when-

Nathan Park: Currently they’re expected that they won’t do it.

Jay Kang: When Bitcoin people here in the states are like, “I have talked to people in the Korean government, and they will never ban exchanges, or they’ll never shut down these exchanges,” look, you’re saying that there’s a decent chance that this might happen.

Nathan Park: There is a decent chance that this might happen. To me, coming from-

Aaron Lammer: Jay just sold all his Bitcoin. Wow, that was so fast, Jay.

Nathan Park: See, I’m coming from the background of securities regulation, like regulation of stocks. Seeing this sort of blows my mind, because buying and selling stock involves so much regulation that I see this and really there’s the most basic regulation, not even the most regulations are there. It always makes my head spin a little.

Aaron Lammer: Well, the next time a Korean statement gets mistranslated in the press, will you come back on and tell us what it actually said?

Jay Kang: Yeah, look.

Nathan Park: Sure.

Jay Kang: Korea is such a huge part of this market, both in terms of perception and how it’s treated in the media, but also just really in terms of just the whole actual economy. It’s such a large percentage of it. Any time something happens, we’d love to have you back on.

Nathan Park: Any time.

Jay Kang: Thanks a lot.

Aaron Lammer: Yeah, thank you so much.

Nathan Park: Yeah, it was great. Thank you.

Robot: This episode of Coin Talk was taped Monday, January 15th at 11:00 am Eastern Standard Time. The Bitcoin price index was $14,066.