Cryptocurrency dives amid fears of ban in South Korea

The South Korean government says it plans to ban cryptocurrency trading, sending bitcoin prices plummeting and throwing the virtual coin market into turmoil.
An electronic board showing exchange rates of cryptocurrencies at a Bithumb exchange in Seoul yesterday. South Korea has emerged as something of a ground zero for the speculative frenzy.
An electronic board showing exchange rates of cryptocurrencies at a Bithumb exchange in Seoul yesterday. South Korea has emerged as something of a ground zero for the speculative frenzy.PHOTO: REUTERS

HONG KONG • Bitcoin slumped yesterday as South Korea's Justice Ministry reiterated a proposed ban on cryptocurrency venues, fuelling concern that a crackdown will erode one of the world's biggest sources of demand for digital currencies.

The ministry is preparing a Bill that would outlaw cryptocurrency trading via exchanges, Justice Minister Park Sang Ki said.

The Korean government disclosed a similar proposal on Dec 28, though at the time it included other options such as allowing trading to continue under tighter regulation.

It is unclear whether the Justice Ministry's proposal will be approved by Parliament.

The plan has spurred a backlash on social media, while a petition opposing the measure on the Korean President's website has attracted more than 54,000 names. The Justice Minister's comments do not represent an official government plan, Korea's YTN cable TV reported, citing an unidentified official from the President's office.

Bitcoin dropped as much as 12 per cent to US$12,801, before paring losses to about 6 per cent, according to data compiled by Bloomberg.

Ripple fell 14 per cent and ethereum slumped 4 per cent.

Governments around the world are increasing scrutiny of cryptocurrencies as surging prices attract everyone from individual investors to Wall Street banks.

South Korea has emerged as something of a ground zero for the speculative frenzy, with the Prime Minister warning recently that the boom might corrupt the nation's youth. The government said in December that it would be conducting on-site investigations of the nation's cryptocurrency exchanges.

"For the last few months the Korean government has been making it very clear they want to bring this speculative activity under control," said Mr Thomas Glucksmann, Hong Kong-based head of APAC business development with cryptocurrency exchange Gatecoin. "This isn't really too much of a surprise."

One of South Korea's biggest digital currency venues, Bithumb, said yesterday that it had a brief meeting with tax officials this week.

The exchange disputed a Reuters report that its offices had been raided by tax and police agents. When contacted by Bloomberg, South Korea's tax authority said it does not comment on investigations due to privacy laws.

Coinone, another exchange mentioned in the Reuters report, did not reply to requests for comment.

An unidentified spokesman told the Financial Times: "They asked for some data such as cryptocurrency trading volume, our exchange's sales and whether we are paying corporate tax."

Police have been investigating Coinone's margin-trading service since last year, according to an official who asked not to be named. He added that no other large exchanges are under investigation.

Even if Seoul's lawmakers push forward with an exchange ban, local investors are likely to keep investing in cryptocurrencies through over-the-counter platforms and overseas venues, said Mr Mike Kayamori, head of Tokyo-based exchange Quoine, which counts Koreans among its customers.

"There are always underground exchanges and OTC," he said. "They'll probably convert their money into bitcoin there, and then start trading offshore."

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A version of this article appeared in the print edition of The Straits Times on January 12, 2018, with the headline 'Cryptocurrency dives amid fears of ban in South Korea'. Print Edition | Subscribe