South Korean plan to ban trading of cryptocurrencies rattles markets
SEOUL (Reuters) – South Korea’s government said last Thursday it plans to ban cryptocurrency trading, sending bitcoin prices plummeting and throwing the virtual-coin market into turmoil as the nation’s police and tax authorities raided local exchanges for alleged tax evasion.
The clampdown in South Korea, a crucial source of global demand for cryptocurrency, came as policy makers around the world struggled to regulate an asset whose value has skyrocketed over the last year.
Justice Minister Park Sang-ki said the government was preparing a bill to ban trading of the virtual currency on domestic exchanges.
“There are great concerns regarding virtual currencies, and the Justice Ministry is basically preparing a bill to ban cryptocurrency trading through exchanges,” Park told a news conference, according to the ministry’s press office.
After the market’s sharp reaction to the announcement, the nation’s Presidential Office hours later said a ban on the country’s virtual-coin exchanges had not yet been finalized, while it was one of the measures being considered.
A Justice Ministry press official said the proposed ban on cryptocurrency trading was announced after “enough discussion” with other government agencies, including the nation’s Finance Ministry and financial regulators.
Once a bill is drafted, legislation for an outright ban of virtual-coin trading will require a majority vote of the National Assembly’s 297 members, a process that could take months or even years.
The government’s tough stance triggered a sell-off of the cryptocurrency on both local and offshore exchanges.
The local price of bitcoin plunged as much as 21% in midday trading on Thursday to 18.3 million won ($17,064.53) after the minister’s comments. It still was trading at around a 30% premium compared to other countries.
Bitcoin was down more than 10% on the Luxembourg-based Bitstamp, at $13,199, after earlier dropping as low as $13,120, its weakest since January 2. South Korea’s cryptocurrency-related shares were also hammered. Vidente and Omnitel, which are stakeholders of Bithumb, skidded by the daily trading limit of 30% each.
Once enforced, South Korea’s ban “will make trading difficult here, but not impossible,” EST Security chief analyst Mun Chong-hyun said.
“Keen traders, especially hackers, will find it tough to cash out their gains from virtual-coin investments in Korea,” Mun said. “But they can go overseas – for example, Japan.”
NH Investment & Securities cryptocurrency analyst Park Nok-sun said the herd behavior in South Korea’s virtual-coin market has raised concerns.
Indeed, bitcoin’s 1,500% surge last year has stoked huge demand for cryptocurrency in South Korea, drawing college students and housewives and sparking worries of a gambling addiction.
“Some officials are pushing for stronger and stronger regulations because they only see more [investors] jumping in, not out,” Park said.
By Thursday afternoon, the Justice Ministry’s announcement had prompted more than 55,000 South Koreans to join a petition asking the presidential Blue House to halt the crackdown on the virtual currency, making the Blue House website intermittently unavailable due to heavy traffic, the website showed.
REGULATORY CONUNDRUM
There are more than a dozen cryptocurrency exchanges in South Korea, according to the Korea Blockchain Industry Association. The proliferation of the virtual currency and the accompanying trading frenzy have raised eyebrows among regulators globally, though many central banks have refrained from supervising cryptocurrencies themselves.
The news of South Korea’s proposed ban came as authorities tightened their grip on some cryptocurrency exchanges.
The nation’s largest cryptocurrency exchanges, such as Coinone and Bithumb, were raided by police and tax agencies last week for alleged tax evasion. The raids followed moves by the Finance Ministry to identify ways to tax the market that has become as big as the nation’s small-cap Kosdaq index in terms of daily trading volume.
Some investors appeared to have taken preemptive action.
“I have already cashed most of mine [virtual coins], as I was aware that something was coming up in a couple of days,” said Eoh Kyung-hoon, a 23-year-old investor.
Bitcoin sank last Monday after website CoinMarketCap removed prices from South Korean exchanges because coins were trading at a premium of about 30% in Asia’s fourth-largest economy. That created confusion and triggered a broad sell-off among investors.
A Coinone official told Reuters a few officials from the National Tax Service raided the company’s office last week. The official said Coinone was cooperating with the investigation.
Bithumb, the second-largest virtual-currency operator in South Korea, was also raided by the tax authorities last Wednesday.
“We were asked by the tax officials to disclose paperwork,” a Bithumb official said.
The nation’s tax office and police declined to confirm whether they had raided the local exchanges.
South Korean financial authorities had previously said they were inspecting six local banks that offer virtual-currency accounts to institutions, amid concerns the increasing use of such assets could lead to a surge in crime.