Cryptocurrencies have become an overnight sensation. Bitcoin almost hit $20,000 in December 2017 after opening the year (Jan 2017) at $980. The price rally caught a lot of attention in 2017 resulting in numerous ICO’s (IPOs for Cryptocurrencies). There are now 1300+ Cryptocurrencies with more being released every day. Considering Cryptocurrencies aren’t backed by tangible assets like Gold, there have been concerns that they are capable of destabilising the entire financial system. Many financial experts have been on record stating that the Cryptocurrency bubble will burst. Others had speculated government and regulator intervention despite most cryptocurrency creators saying that would be out of the question.
We can’t say the bubble has burst yet although the price of Bitcoin (the most popular cryptocurrency) has been dropping in 2018. One Bitcoin costs approximately $12,466 as of January 17th, 2017. We are also starting to see government intervention with South Korea leading the way.
On January 11th, 2018, police raided Bithumb and Coinone offices, the two largest cryptocurrency exchanges in South Korea on suspicion of tax evasion. On the same day, South Korea Justice Minister Park Sang-ki made a statement implying that the government was going to ban all trading activities taking place on domestic crypto asset exchanges.
South Korea has one of the biggest Bitcoin and cryptocurrency market in Asia accounting for approximately 20% of the world’s global Bitcoin transactions. In fact, many Koreans have sizable portions of their money/savings in cryptocurrency. Furthermore, the country lacks good high-yield investment opportunities for ordinary citizens. A recent survey indicated that 30% of all salaried workers have invested in Cryptocurrencies.
News over the looming cryptocurrency ban spread like wildfire tumbling the price of Bitcoin. The price hasn’t recovered since despite reassurances from the South Korean government via a statement released on 15th January 2018 suggesting that the said cryptocurrency crackdown wasn’t imminent. The South Korean government through the Government policy Coordination office has tried to backtrack from recent comments by the Justice Minister as well as recent government action. However, many are convinced the current developments signify a looming clampdown.
This is because the government hasn’t ruled out intervention or a complete ban. The most recent statement suggests that the government is waiting to consult widely and coordinate options before arriving at a decision. As of now, the government hasn’t offered much relief to its citizens as well as many others who have invested in Bitcoin considering the effects of the remarks made by the Justice Minister on January 11th, 2018.
Furthermore, this isn’t the first time the South Korean government is displaying hostility towards Cryptocurrencies. On 28th December 2018, the government issued a warning stating that virtual currencies can’t play the role of actual currency. The warning also relayed concerns that excess volatility could cause massive losses. The latest statement suggests that some South Korean government officials and organizations don’t agree on how to handle the cryptocurrency boom. South Korea already banned ICOs in December 2017 as well as anonymous crypto trading accounts over criminal concerns. Popular exchange, Youbit, has also filed for bankruptcy after a hacking incident saw the exchange lose $35 million worth of Bitcoin.
South Korea is not the only Asian country facing a complete cryptocurrency ban. Senior government and banking officials have been on record calling for a total ban. Back in September 2017, Chinese regulators banned ICOs and introduced other stringent measures such as ordering domestic exchanges to halt all crypto-to-fiat trading services. Since then, major exchanges have shifted to over-the-counter as well as global crypto-to-crypto trading.
Many crypto skeptics in China have argued that the current measures aren’t enough given crypto trading services are still available for residents. China is a perfect example of how a cryptocurrency trading ban can fail. As soon as the Chinese authorities pounced on domestic exchanges to stop trading, most relocated overseas. Traders resorted to using trading applications such as telegram to trade directly or over-the-counter without an intermediary.
Reports indicate that Chinese authorities and senior banking officials such as Pan Gongsheng, China’s Central Bank Vice Governor are working on a framework that will allow local and central authorities to investigate as well as block all domestic and foreign platforms that support cryptocurrency trading.
It is however clear that a complete ban on cryptocurrency anywhere in the world will be easier said than done. Cryptocurrencies are designed to be free of centralized authority. Their decentralized nature is the main reason why they have become popular globally. Majority of the global population has lost trust in Fiat currency given its obvious shortfalls such as susceptibility to manipulation.