Bitcoin has the highest profile of all cryptocurrencies so when a government hints at banning trading, it, along with all other digital currencies, get the jitters.
That was the case recently when the South Korean government hinted that a ban, or some other tight regulatory measure, might be on the way. In a press conference on Thursday, January 11, 2018, Justice Minister Park Sang-ki, said that “There are great concerns regarding virtual currencies and justice ministry is basically preparing a bill to ban cryptocurrency trading through exchanges.”
Currencies like Bitcoin have had a near-perfect run in most developed countries as it relates to regulatory oversight. Bitcoin in particular has enjoyed strong trading in South Korea, a country which accounts for more than 20% of global cryptocurrency trading. There are more than a dozen cryptocurrency exchanges in South Korea, a fact tracked and substantiated by the country’s own association dubbed the Blockchain Industry Association.
The South Korean government seems to be having concerns for two main reasons. First, Bitcoin and its close rival for Korean trading dollars, Ethereum, have started to eat into the financial pool. According to some sources, the South Korean won is now seeing a steady transfer of value against digital currencies. 10% of Ethereum is traded against the Won; while 5% of Bitcoin is traded against the Won. It appears the government is concerned in any potential weakening of the national currency should too much end up in Bitcoin and other digital currencies.
The other major concern for the South Korean government is speculation. Regulators are now looking at the highly speculative nature of Bitcoin trading, citing the symptoms of “gambling” among many traders, many of whom are really novice investors looking to capitalize on the wave of interest and exponential growth of digital currencies. This developing trend isn’t helped by the fact that in South Korea, digital currencies trade at a 30% premium to the rest of the world. When Bitcoin is trading for $10,000 in the US, South Korean investors/traders have to fork out a full $3,000 more just to be in the game. For some in the South Korean government these circumstances make for a heady cocktail of potential disaster, hence the mooting of a ban.
The news, of course, hasn’t been good for cryptocurrencies. Bitcoin fell 12% on the news while Ethereum declined 7.6%. Both have since recovered slightly, but the concerns for tighter regulator control looms large.
The big question is whether the biggest set of traders – those in America – will have to face tighter restrictions on trading. It’s perhaps too early to tell but odds are a South Korean ban could lead to a wave of clampdowns in other countries. Given America’s overall greater adherence to regulatory robustness, it’s hard to see a South Korean ban not prompting some changes stateside.
Traders and investors, especially in South Korea, will be encouraged by the somewhat slight back-pedaling of the Justice Ministry and the presidential office. Later in the day Thursday, it was announced that any potential bill “is not a measure that has been finalized.” But perhaps the biggest encouragement is the consideration that any ban, for it to take effect, would need a majority vote in the Korean parliament. Analysts have suggested that getting such a measure through could take months, even years. Till then, Bitcoin and others will be rolling on.