South Korea is trying to cool its red-hot bitcoin market
The country’s government said Thursday it was putting in place measures to cool speculation in the red-hot cryptocurrency, which has surged by more than 1,300% in 2017.
The measures include a ban on opening anonymous virtual currency accounts and new laws giving authorities the power to shut down digital currency exchanges.
South Korea, a global hub for bitcoin trading, has previously said it wants to tax profits from trading in virtual currencies.
“The government has repeatedly warned that virtual currencies are not legal currency, that prices can fluctuate drastically and cause great losses,” Thursday’s statement read.
Bitcoin’s value dropped soon after the announcement. The virtual currency plunged more than 10% to below $14,000 on Thursday morning in Asia, according to CoinDesk.com, and continued to fluctuate through the day.
Mati Greenspan, a Tel Aviv-based analyst at investment firm eToro, said it would be too early to gauge the impact of the rules, but they sounded “ominous.”
“If they start shutting down exchanges, it won’t kill bitcoin or affect its desirability… but it would seriously hamper the flow of funds,” he added.
South Korea has become an early mover in trying to regulate cryptocurrencies like bitcoin, which have largely fallen outside the grasp of governments and central banks.
The country has become a hotbed of bitcoin activity, often accounting for about 20% of daily worldwide trading in the cryptocurrency.
Bitcoin is in such high demand that South Korean traders can end up paying a premium of between 15% and 20% compared with prices elsewhere.
The country is also home to Bithumb, one of the world’s biggest bitcoin exchanges.
Other governments have differed in their approaches to virtual currencies. China has taken a hard line on bitcoin exchanges, whereas Japan earlier in 2017 recognized bitcoin as a legal currency.
South Korea is all too familiar with the potential perils of digital currencies.
Earlier in December, another bitcoin exchange in the country said it had gone out of business after being hacked for the second time in less than a year.
Seoul-based Youbit said it was filing for bankruptcy after hackers stole nearly a fifth of its clients’ holdings.