The South Korean government has issued a ban on all cryptocurrency exchanges. This has resulted in the plummeting in the value of Bitcoins and has thrown the cryptocurrency market into a turmoil.
South Korea is one of the biggest markets for cryptocurrency.
Cryptocurrency is a digital asset (in other words a form of digital money) that is designed to stay secure. It uses cryptography to secure its exchanges making it nearly impossible to counterfeit. Cryptocurrency in particular is classified as a subset of digital currencies.
Bitcoin is a community-run system. It has often been referred to as the first “start-up currency”. By the beginning of 2015, there were 100,000 merchants and vendors who accepted Bitcoins as payment. Bitcoins have been used in illegal trade online as well. Critics argue that digital cash systems are volatile and speculative in nature and comes with a number of inherent risks.
In the final months of 2017, the value of Bitcoins began to rise exponentially along with other cryptocurrencies. At one point it was trading at $20,000 thus sparking a slew of warnings from experts and analysts. Other cryptocurrencies like Ripple and Dogecoin have also performed incredibly well in the past year.
However, experts have also noted that the craze around Bitcoins and other cryptocurrencies might be a bubble. James Dimon, the Chairman, President and Chief Executive Officer of JPMorgan Chase said, “It's just not a real thing, eventually it will be closed. I'm not saying 'go short bitcoin and sell $100,000 of bitcoin before it goes down. This is not advice of what to do. My daughter bought bitcoin, it went up and now she thinks she's a genius. It's worse than tulip bulbs. It won't end well. Someone is going to get killed. Currencies have legal support. It will blow up.”
Governments too have begun talking about the cryptocurrencies. The Reserve Bank of India issued two warnings regarding Bitcoins in 2017. In September 2017, China called a freeze on all fundraising through initial coin offerings. The country also shut down exchanges with hopes of completely undercutting cryptocurrencies. In addition, three of the nation’s largest cryptocurrency exchanges, OKCoin, Huobi and BTC China issued statements noting that they would shut down trading.
South Korea is one of the most active markets for cryptocurrency exchanges. However, the nation’s exchanges have been affected by cyber breaches that have occurred in the past few months. A South Korean cryptocurrency exchange called Youbit had to declare bankruptcy after it was hacked and 17% of its assets were stolen. It had been hacked once earlier in April 2017 when nearly 4,000 Bitcoins were stolen in a cyber-attack that the country’s spy agency linked to North Korea.
The South Korean government has announced that it shall be banning all cryptocurrency exchanges. This has resulted in the plummeting in the value of Bitcoins and has thrown the cryptocurrency market into a turmoil. In addition to the ban, the country’s police and tax authorities also raided the region’s local cryptocurrency exchanges over alleged tax evasion.
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.
It should be noted that this won’t result in an outright ban presently. A bill will have to drafted and it will have to pass with a majority vote of the total 297 members of the National Assembly, Experts note that this process could take months and sometimes years.
The value of Bitcoin has come down considerably in the past few days. On January 11th, it had fallen 7% to $13,000. However, it is unclear on whether this was because of South Korea’s announcement. According to industry website CryptoCompare, more than 10 percent of ethereum is traded against the South Korean won — the second largest concentration in terms of fiat currencies behind the dollar. Last month, the South Korean Financial Services Commission said it was prohibiting cryptocurrency exchanges from issuing new trading accounts.
Recently, Billionaire investor Warren Buffett also spoke against the cryptocurrency trend. "In terms of cryptocurrencies, generally, I can say with almost certainty that they will come to a bad ending," the chairman and CEO of Berkshire Hathaway said.
Our assessment is that governments across the world have struggled to adequately regulate cryptocurrencies as their value has continued to soar. It is likely that South Korea’s ban will cause a certain amount of disturbance within the cryptocurrency market. However, it is unlikely that this would result in the destruction of Bitcoins and other cryptocurrencies as they remain highly popular among traders. As more people continue to adapt to cryptocurrencies, they could be viewed as hard cash in the near future. Governments should create systems that can therefore regulate this market to prevent it from being breached or hacked.