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South Korea plans to ban cryptocurrency trading, rattles market

Cryptocurrency NewsJan 11, 2018 12:52AM ET
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© Reuters. A man walks past an electric board showing exchange rates of various cryptocurrencies at Bithumb cryptocurrencies exchange in Seoul

By Cynthia Kim and Dahee Kim

SEOUL (Reuters) - The South Korean government on Thursday said 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 on alleged tax evasion.

The clampdown in South Korea, a crucial source of global demand for cryptocurrency, came as policymaker around the world struggled to regulate an asset whose value has skyrocketed over the last year.

Justice minister Park Sang-ki said the government is preparing a bill to ban trading of the virtual currency on domestic exchanges.

"There are great concerns regarding virtual currencies and justice ministry is basically preparing a bill to ban cryptocurrency trading through exchanges," said Park at a press conference, according to the ministry's press office.

A 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 total 297 members of the National Assembly, a process that could take months or even years.

The government's tough stance triggered a selloff of the cyrptocurrency on both local and offshore exchanges.

The local price of bitcoin plunged as much as 21 percent in midday trade to 18.3 million won ($17,064.53) after the minister's comments. It still trades at around a 30 percent premium compared to other countries.

Bitcoin (BTC=BTSP) was down more than 10 percent on the Luxembourg-based Bitstamp at $13,199, after earlier dropping as low as $13,120, its weakest since Jan. 2.

South Korea’s cryptocurrency-related shares were also hammered. Vidente (KQ:121800) and Omnitel (KQ:057680), which are stakeholders of Bithumb, skidded by the daily trading limit of 30 percent each.

Park Nok-sun, a cryptocurrency analyst at NH Investment & Securities, said the herd behavior in South Korea's virtual coin market has raised concerns.

Indeed, bitcoin (BTC=BTSP)'s 1,500 percent surge last year has stoked huge demand for cryptocurency in South Korea, drawing college students to housewives and sparking worries of a gambling addiction.

"Virtual coins trade at a hefty premium in South Korea, and that is herd behavior showing how strong demand is here," Park said. "Some officials are pushing for stronger and stronger regulations because they only see more (investors) jumping in, not out."

RAIDS

There are more than a dozen cryptocurrency exchanges in South Korea, according to 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 on South Korea's proposed ban came as authorities tightened their grip on some of the cryptocurrency exchanges.

The nation's largest cryptocurrency exchanges like Coinone and Bithumb were raided by police and tax agencies this week for alleged tax evasion. The raids follow 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 on Monday after website CoinMarketCap removed prices from South Korean exchanges, because coins were trading at a premium of about 30 percent in Asia's fourth largest economy. That created confusion and triggered a broad selloff among investors.

An official at Coinone told Reuters that a few officials from the National Tax Service raided the company's office this week.

"Local police also have been investigating our company since last year, they think what we do is gambling," the official, who spoke on condition of anonymity, said and added that Coinone was cooperating with the investigation.

Bithumb, the second largest virtual currency operator in South Korea, was also raided by the tax authorities on Wednesday.

"We were asked by the tax officials to disclose paperwork and things yesterday," an official at Bithumb said, requesting anonymity due to the sensitivity of the issue.

The nation's tax office and police declined to confirm whether they raided the local exchanges.

South Korean financial authorities had previously said they are 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.

($1 = 1,069.9600 won)

South Korea plans to ban cryptocurrency trading, rattles market
 

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Spencer Watkins
Spencer Watkins Jan 11, 2018 5:34AM ET
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Nah. Ain't gonna work. They dang well know it.
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Emmanuel Alen
Emmanuel Alen Jan 11, 2018 5:20AM ET
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Trillions of debt on all corners our decaying outdated financial system. Bank runs, negative interest or super low returns for savers for the last 10 years, fiat currency devaluating with tremendous loss in purchasing power across all nations, gold trading manipulation confirm even by Deutsche Bank, insolvency all over major economies... and so on.. And crypto a drop of innovation in mid trillions of derivatives and debt is the problem? We should all be supporting it ! It can maybe save us from a total economic meltdown!
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Chris Jones
Chris Jones Jan 11, 2018 5:20AM ET
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Someone who gets it !!
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Sreenivasan T S Thirumala
Sreenivasan T S Thirumala Jan 11, 2018 4:33AM ET
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ban this nonsense called cryptocurrency  immediately ......sans all logic and prudence ....and not at all connected with the word economy,any nation, any gdp, any logic....absolute nonsense.....to be banned and illegalised immediately
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jiko jiko
jiko jiko Jan 11, 2018 2:00AM ET
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This is not true. SK is not banning trading. They are regulating unregulated crypto exchanges. Stop sending the wrong info.
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Victor Das
Victor Das Jan 11, 2018 2:00AM ET
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They're planning to Ban
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Jon Jonson
Jon Jonson Jan 11, 2018 2:00AM ET
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The info is quite true im afraid.
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Ishan sharma
Ishan sharma Jan 11, 2018 2:00AM ET
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Do you have any resources which backs your claim?.. I know media is mostly wrong, but if you can prove them wrong it will be a good thing to do
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Franklin Adinnu
Franklin Adinnu Jan 11, 2018 2:00AM ET
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it is game of the rich... they spread fake news and little minds investors sell off the investment and they buy in dip .......hahahahahaha
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Leonard Luzon
Leonard Luzon Jan 11, 2018 2:00AM ET
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Ishan sharma These type of news are catalysts whether it has no basis or somewhat true. Novices are easily fell on bear or bull traps.
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