Hyperithm, a cryptocurrency fund manager, has decided to give up on renewing its registration as a virtual asset service provider (VASP). The decision comes as domestic operators struggle to find new revenue sources, with corporate crypto investment still barred and the long-awaited framework act on digital assets stalled. With regulatory requirements also being tightened, concerns are growing that smaller operators could accelerate their exit from the market.
Hyperithm has decided to voluntarily withdraw the VASP renewal filing it recently submitted to the Korea Financial Intelligence Unit (FIU) under the Financial Services Commission and is taking follow-up steps, according to financial industry sources on the 14th. The firm runs cryptocurrency funds for institutional investors and ultra-high-net-worth clients from bases including South Korea, Japan and Hong Kong. Its assets under management stood at about 750 billion won ($520 million) at the end of last year.
"After our VASP filing was accepted, we did not launch any services for users in Korea," Hyperithm Chief Executive Oh Sang-rok said. "We reviewed our business plan again and decided to withdraw the renewal filing."
With Hyperithm's departure, the number of registered VASPs in South Korea fell to 28 as of the end of September. The figure stood at 42 early last year but shrank to 27 by the start of this year as a series of firms gave up on renewal or let their registrations lapse amid weak business and deteriorating profitability. It edged up to 29 at the end of August after AhnLab Blockchain Company and BitGo Korea won approval for new filings, only to resume its decline. Compared with early last year, one in three operators has disappeared.
Industry officials point to the narrow business base of the domestic crypto industry as the fundamental problem. With corporate investors shut out of the market, they say, it is difficult to diversify beyond retail exchanges into areas such as asset management, custody and payments. The Financial Services Commission said in February last year that it would allow listed companies and corporations registered as professional investors to trade cryptocurrency starting in the second half of that year, but has yet to produce the relevant guidelines a year and a half later.
With business conditions showing no improvement, earnings at smaller firms are also worsening. A survey by financial regulators found that wallet and custody operators posted an operating loss of 18.6 billion won ($12.9 million) in the first half of this year, double the 9.3 billion won loss in the second half of last year.
While business opportunities remain scarce, regulatory hurdles are rising. Under the revised Act on Reporting and Using Specified Financial Transaction Information, which took effect in August, existing VASPs must refile by Nov. 20 under stricter standards. The eligibility of major shareholders has been added to the review, and requirements including a debt ratio of 200% or less and anti-money laundering (AML) internal controls, staffing and IT systems have been tightened. Legislative discussion of the framework act on digital assets, which the industry hopes will serve as a basis for entering new businesses, also remains sluggish.
Developments abroad stand in contrast. Russia, which once sought to ban cryptocurrency trading, recently allowed banks to enter the business. Sberbank, Russia's largest lender, has completed registration with the central bank as a cryptocurrency exchange operator and plans to offer trading services to clients from December.
The head of one cryptocurrency firm said the businesses that can be pursued in South Korea are limited even for companies holding VASP status, while administrative burdens such as regulators' demands for data submissions are considerable. More firms could give up their operator status, the executive added.