South Korea Regulators Warn Over High-Leverage Crypto Lending Services

South Korea’s financial regulators have sounded alarms over newly launched cryptocurrency loan and margin trading services offered by Upbit and Bithumb, the nation’s two leading exchanges. These services, launched on July 4, 2025, enable users to borrow cryptocurrency using either cash or digital assets as collateral. Bithumb offers up to 4x leverage on 10 cryptocurrencies, including Bitcoin and Ethereum, while Upbit provides similar features for three coins, such as Bitcoin and Tether. The products support short selling, allowing traders to benefit from price declines but exposing them to heightened risks in an inherently volatile market [1].

Concerns were raised by the Financial Services Commission (FSC) and Financial Supervisory Service (FSS), who convened meetings with executives from the five largest exchanges in the country on July 25, 2025. Regulators expressed alarm over Bithumb’s 4x leverage, which surpasses the 2:1 margin ratio permitted in the Korean stock market. The high leverage, they noted, could amplify losses and create systemic risks in a market prone to sharp price swings. Additionally, the lack of legal clarity and investor protections was highlighted as a potential vulnerability in the regulatory framework [1].

In response to the warnings, Upbit halted its Tether loan service on July 28, 2025, indicating a readiness to adjust its offerings to meet regulatory expectations. Bithumb, however, has yet to announce any modifications, though it did restructure its service model earlier in the week. As Upbit and Bithumb collectively dominate a significant share of South Korea’s crypto market, their ability to adapt will likely shape the regulatory landscape and broader market dynamics [1].

The regulatory scrutiny reflects South Korea’s measured approach to the rapidly expanding crypto industry. While the new services offer traders potential profit opportunities, they also pose considerable risks—particularly to retail investors who may not fully grasp the implications of leveraged trading. The FSC’s emphasis on investor protection suggests that more stringent regulations may follow, potentially reshaping how crypto financing is conducted in the country. Considering South Korea’s robust trading community, regulatory developments could influence global perceptions of the region’s crypto market [1].

The ongoing review underscores the urgent need for clear legislative frameworks and robust investor safeguards in the crypto sector. Upbit’s swift reaction highlights market sensitivity to regulatory signals, yet the long-term viability of such services will depend on how exchanges navigate the balance between innovation and compliance. As the FSC and FSS continue to assess the risks and benefits, the industry faces a pivotal moment in aligning with evolving regulatory expectations in a high-stakes environment [1].

Source:

[1] Korean Regulator Raises Red Flags Over Crypto Lending

(https://financefeeds.com/korean-regulator-raises-red-flags-over-crypto-lending/)