South Korean financial authorities have temporarily suspended new crypto loan services in a direct response to major liquidation events at local exchanges.
The move highlights growing global concern over excessive leverage in the digital asset market.
The decision by the country’s Financial Services Commission (FSC) follows a recent incident on Bithumb, with regulators noting that more than 27,000 customers tapped on lending services in June.
When market prices swayed against them, 13% of these users were forced to liquidate.
Authorities said the suspension will continue until formal “virtual asset rental services guidelines” are ready. They justified the action by noting that “user protection devices are … insufficient” and “there are concerns about damages to healthy trading orders.”
“In a direction that shows more stringent surveillance of leverage and retail risks, rather than a permanent ban.” Decryption About the suspension.
The suspension “signals identifying that the government must provide further regulatory clarity to maximize its investors,” said Austinking, co-founder of the Ethereum-based Layer-1 network Omni network. Decryption.
King believes it is not “not scrutiny at all,” but rather allows the government to acknowledge its own “inadequate clarity of regulations” and create “clear rules for roads.”
This incident is a micro-level example of macro-level trends.
According to a recent report from Galaxy Digital, leverage is being built across the entire crypto ecosystem, especially after Bitcoin’s record high in August.
The report found that the total value of outstanding crypto-functionalised borrowing across both centralized and decentralized projects reached an all-time high of $442.5 billion, up nearly 30% from the last quarter.
On-chain lending increased 42% to $26.5 billion, while open borrowings on the centralized platform increased 14.66% to $177.8 billion.
Bitfinex analysts further highlight this growing vulnerability, noting that total liquidation remains rising, with average daily liquidation exceeding $350 million over the past 30 days.
So far, more than $3 billion in positions have been settled in August, making an overwhelming contribution from short sales.
“This tracks a wider pattern,” Luke added, placing a shift into a global context in Korea by referring to the European MICA and recent regulatory developments in the US.
“The ratio of BTC liquidation for Altcoin liquidation has skyrocketed to historically rising levels,” Bitfinex’s July report said.
The accumulation of leverage over the past month, especially in the Altcoin segment, suggests a return of speculative enthusiasm. This indicates that the crypto market is entering a more vulnerable stage where the risk of liquidation is increasing.
This is precisely why, according to Austinking, Korea’s rapid action acts as a clear regulatory warning, providing “the constraints needed to the maximum amount of leverage offered in derivative products,” and creating a blueprint for other countries to follow.
