Bitcoin slumped as South Korea’s justice minister reiterated his proposal to ban local cryptocurrency exchanges, fueling concern that a government crackdown will erode one of the world’s biggest sources of demand for digital currencies.
The minister’s comments to reporters on Thursday were later downplayed by a spokesman for President Moon Jae-in, who said the proposal is just one among several and that nothing has been finalized. Korea’s government unveiled multiple options for cryptocurrency exchange regulation last December 28, including allowing trading to continue under tighter supervision.
Bitcoin dropped as much as 12 percent to $12,801, its lowest since Christmas Day, before paring the loss to about 9 percent at 11:40 a.m. London time, according to data compiled by Bloomberg. Ripple tumbled 18 percent and ethereum slumped 9 percent.
Governments around the world are increasing scrutiny of cryptocurrencies as soaring prices attract everyone from mom-and-pop investors to Wall Street banks. Korea emerged as something of a ground zero for the speculative mania, playing host to several of the world’s most active exchanges. Bitcoin prices in the country are persistently higher than those in the United States.
The boom has alarmed Korean authorities. The country’s prime minister has said that cryptocurrencies might corrupt the nation’s youth, while the government warned last December that it would be conducting on-site investigations of exchanges. The finance ministry is studying a cryptocurrency tax.
“For the last few months, the Korean government has been making it very clear that they want to bring this speculative activity under control,” said Thomas Glucksmann, Hong Kong-based head of Asia-Pacific business development with cryptocurrency exchange Gatecoin Ltd. “This isn’t really too much of a surprise.”
One of Korea’s biggest digital currency venues, Bithumb, said on Thursday that it met briefly 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, Korea’s tax authority said it doesn’t comment on investigations due to privacy laws.
Coinone, another exchange mentioned in the Reuters report, didn’t 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 well.”
Police have been investigating Coinone’s margin-trading service since last year, according to an official who asked not to be named citing policy. He added that no other large exchanges are under police investigation.
A range of negative comments from investors and governments have undercut the market this week. Ripple, for example, is down for a fourth successive day, something it hasn’t done since last October. The market was “reeling” on Thursday over comments by Warren Buffett, eToro Senior Market Analyst Mati Greenspan said in a note. The legendary investor said crypto gains will be fleeting.
There have also been reports that China’s government is discouraging mining in the country, home to the majority of that process.
“Some interpreted these announcements to mean China will completely shut down mining operations,” said Bloomberg New Energy Finance China analyst Sophie Lu said. “Others feel that regulators are only tightening enforcement” on a process that in any event can move to other countries without threatening Bitcoin’s future.
At the same time, buying interest seems to swell unabated. The world’s biggest cryptocurrency exchange, Hong Kong-based Binance.com, said it’s adding “a couple of million” registered users every week, with 240,000 people signing up in just an hour on Wednesday. And Rambler News Service reported that Russia’s Finance Ministry plans to allow cryptocurrency trading only on “official” exchanges, citing Deputy Finance Minister Alexey Moiseev.
In Korea, it’s unclear whether the justice ministry’s proposal will be approved by other government ministries and parliament. The plan has spurred a backlash on social media, while a petition opposing the measure on the president’s website has attracted more than 54,000 names.
Even if lawmakers push forward with the exchange ban, local investors are likely to find ways to keep buying cryptocurrencies, said Mike Kayamori, head of Tokyo-based exchange Quoine, which counts Koreans among its customers.
“There are always underground exchanges” and over-the-counter platforms, he said. “They’ll probably convert their money into bitcoin there, and then start trading offshore.”