The Virtual Asset Market Plummeted More Than 40% in Just a Day, Reasons Why It Is Impossible to Introduce Circuit Breakers into the Virtual Market

COVID-19 sent ‘shock waves’ throughout global financial market… The virtual asset market also showed a steep decline Some people have suggested introducing circuit breakers to protect investors’ assets Circuit breakers can be introduced functionally, but it requires discussion and coordination between exchanges around the world… Therefore, its practical introduction is difficult

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COVID-19 pandemic continues to send shock waves throughout global financial market. Accordingly, some people argue that the virtual asset (cryptocurrency) market needs to introduce ‘circuit breakers’ in the financial market. However, practical introduction will not be easy since there are no specific legal standards.

There is a consensus that the virtual asset exchange industry needs a safeguard to protect users’ assets, but the industry considered that it is practically difficult to introduce circuit breakers to temporarily halt trading. In particular, they believe that it is more important to prepare specific standards because the government is establishing enforcement ordinance of the amended Specific Financial Transaction Information Act.

Circuit breakers are a system that temporarily halts stock trading when stock prices surge or plummet in the stock market. Recently, as the fluctuations of the global stock market have increased, circuit breakers have been triggered not only in Korea but also in US.

As COVID-19 spreads as a pandemic, the virtual asset market including Bitcoin plummeted more than 40% on the 13th.

The Korea Exchange (KRX) is in charge of stock trading in Korea, so it is possible to take measures such as circuit breakers at once, but virtual asset exchanges where various virtual assets are traded for 24 hours are different from the KRX.

There are various cases, such as a case where a domestic user uses a foreign exchange or a case where a foreign user uses a domestic exchange. Therefore, it is difficult to introduce circuit breakers because there are so many things to coordinate between exchanges around the world, such as time difference, to temporarily halt the virtual asset trading.

In addition, even if the circuit breakers are triggered by one exchange, it is necessary to discuss and coordinate between the exchanges, since the efficiency is reduced when it is possible to buy or sell at other exchanges.

However, exchanges around the world need to participate in the discussion for it, and considering the interests between exchanges, it will not be easy to reach an agreement.

A virtual asset exchange official said, “The existing stock exchange has a specific standard and scope of circuit breakers, but the virtual market is immature, so no related system was created.” “The exchange should consider the fact that even if the circuit breakers are introduced, the price of the virtual asset will go down after the trading is suspended, and the users who have made a loss could request for dispute,” he added.

He said, “We are considering a system like circuit breakers, but all exchanges are unable to implement it because there is no specific legal standard.” “We want the discussion to be publicized while preparing the enforcement ordinance of the amended Specific Financial Transaction Information Act because we can be involved in legal disputes,” he added.”

Huobi Global, a foreign virtual asset exchange, announced that it will apply circuit breakers to derivative trading platform Huobi DM. They announced that they would use a method of partially liquidating rather than liquidating all at once to prevent market shocks.

In this regard, an official from Huobi Korea explained, “The circuit breakers introduced by Huobi Global are applied to margin trading where the market fluctuation is larger than the traditional market and operates in a different way from the circuit breakers of the existing financial market.”

Jeong Yoo-rim(2020.03.23) 하루에 40% 폭락한 가상자산, ‘서킷브레이커’ 안되는 이유
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