Why is South Korea spooking international bitcoin market?
Detroit Auto Show opens
THE world of bitcoin – rarely free of wild ups and downs of late – has been rattled this week by word that South Korea is preparing a ban on trading in virtual currencies. The question is how real that threat might be.
South Koreans have taken to digital tokens with fervour. The worldwide virtual currency boom that started last year has swept up savers young and old in South Korea, helping push up global prices.
The government has expressed alarm. Officials, including the prime minister, have voiced concerns about an irrational frenzy. Raids by South Korean tax officials on digital currency exchanges this week have added to unease among investors.
“I am so nervous,” said Kim Su-jin, a 50-year-old investor in bitcoin and other virtual currencies who works as a bookkeeper at a women’s clothing store in Seoul. “My coins could become trash if the government closes the exchanges.”
But South Korea does not appear to be done with cryptocurrencies yet. Several political leaders have already aired opposition to a ban on bitcoin trades, indicating that the public enthusiasm for virtual currencies just might be strong enough to shield them from further intervention.
What might South Korea do?
The country’s justice minister, Park Sang-ki, said this week that his ministry was drawing up a bill that would include the complete shutdown of virtual currency exchanges, adding that trading in the tokens “has started to resemble gambling and speculation”.
The most popular bitcoin exchanges in South Korea process hundreds of millions of dollars’ worth of transactions every day. Trades using the Korean won account for around 5 percent of the volume of bitcoin trades globally.
Will the government pursue a ban?
For now, authorities do not appear to be of one mind on the subject. After Park’s comments Thursday, a spokesman for President Moon Jae-in clarified that the Justice Ministry’s plan was not final, according to the Yonhap news agency.
Then, on Friday, Kim Dongyeon, the finance minister, emphasised that other ministries would be expected to confer on the Justice Ministry’s proposal, Yonhap reported.
Will lawmakers support it?
At the very least, a ban would not be passed quickly: Securing a majority of votes in the National Assembly could take months.
More to the point, several lawmakers from major parties signalled this week that they would not support a crackdown. Park Young-sun, a member of the governing party who has no relation to the justice minister, wrote on her Facebook page that closing the exchanges would be like “setting fire to a strawroofed house to catch a bedbug.” Ha Tae-kyung, a legislator with the opposition Bareun Party, wrote on Facebook that criminalising virtual currencies would fly in the face of the administration’s claims to support new technologies.
South Korean citizens have also voiced their opposition to a potential clampdown by signing petitions with the president’s office. The most popular of these has garnered more than 120,000 signatures.
“The power of the individual investor is very huge in South Korea,” said Simon Seojoon Kim, chief executive of Hashed, a fund in Seoul that invests in virtual currency projects.
What prompted the investigations?
The National Tax Service in South Korea declined to comment on why its representatives visited two major virtual currency exchanges, Bithumb and Coinone, this week. But Shin Won-hee, head of operations at Coinone, said that tax authorities wanted to check that the company had paid proper corporate tax.
Bithumb told local news outlets that it was cooperating with the investigation.
Separately, police in Gyeonggi province, which surrounds Seoul, have been investigating whether Coinone is operating “a gambling site”. The company had previously allowed investors to buy and sell virtual currencies on margin – that is, to place bets using borrowed money. But Shin said that Coinone decided in November to stop allowing margin trading as government officials began expressing concerns about market overheating.
Why is bitcoin more expensive in South Korea?
Park, the justice minister, said this week that the depths of South Korean investors’ irrationality was reflected in the high premium – around 30 percent on Friday – that they pay on bitcoin exchanges in South Korea over those elsewhere.
“That media have used the phrase ‘ kimchi premium’ reflects foreigners’ assessment that the Korean market is abnormal,” Park said.
Experts said South Korean prices were also higher because the exchanges there do not allow trading by foreigners. That prevents overseas investors from selling bitcoin in South Korea to profit from – and thereby help narrow – the price gap.
South Korea’s isolation from the global market leads investors at home to seek better prices elsewhere. “We are seeing Koreans taking loads of cash to buy bitcoin in Indonesia and other countries in Southeast Asia where bitcoin is cheaper,” said Hong Kihoon, professor of economics at Hongik University in Seoul.
What do investors think?
With so many conflicting signals from the government, “I don’t think any of us think that these strong measures will actually be implemented,” said Hyon Hae-in, a 35-yearold bitcoin investor.
“Longtime investors see times like these as opportunities to trade,” she said. THE Detroit Auto Show kicked off yesterday, with pickup trucks and SUVs taking centrestage in a sign of their growing might in the US car market.
Sunday’s agenda f or the 30th instalment of the annual show includes an appearance by US Transportation Secretary Elaine Chao, a Ford vehicle l aunch and panels a n d p r e s e n t a t i o n s w i t h industry technology experts and gadflies.
General Motors got things off to an early start Saturday night, unveiling its revamped 2019 Chevrolet Silverado pickups, billed as the “next generation of strong”.
A short video with twangy music and upbeat testimonials from Silverado owners was followed by the introduction of four of the eight Silverado models at different price points and with slightly different styling.
The Silverado was the second best-selling US vehicle in 2017 after the Ford F-series and ahead of the Ram 1500, in third position. All three are pickups.
“Ever ything’s just bigger here, so I think that’s what makes us just love our trucks,” said Chris Luce, 24, a Silverado owner from Brighton, Michig a n , who a t t e n d e d t h e launch.
Ot h e r c a r maker s s e e n unveiling pickups, SUVs and large “crossover” vehicles include Ford, Fiat Chrysler, Nissan and Toyota’s Lexus.
The show is expected to be light on electric cars and to be dominated by spiffed up versions of the bread-and-butter vehicles that dominate the US market.
Car sales in the US fell modestly last year for the first time since the financial crisis but came in at a still-solid 17.2 million, well above the 16 million that many analysts consider good.
While the show is primarily an opportunity to ogle what’s coming next from Motor City, politics is certain to enter the discussion as well.
US carmakers are eyeing negotiations to revamp the North America Free Trade Agreement following President Donald Trump’s vows to cut a better deal for US companies and workers.
The just-enacted US tax cut bill, which will boost corporate profits and includes measures intended to encourage capital spending, will also be in focus.
The show is expected to draw some 700,000 people to the Cobo Center in downtown Detroit, opening to the public on January 20 following press and industry days.