The cryptocurrency market is trading in red amid reports that the South Korean justice department is moving to prepare a bill that would ban trading of the digital currencies on domestic crypto exchanges, according to Reuters.
At a press conference, justice minister Park Sang-ki said, “There are great concerns regarding virtual currencies and the justice ministry is basically preparing a bill to ban cryptocurrency trading through exchanges.” (Source: “South Korea plans to ban cryptocurrency trading, rattles market,” Reuters, January 10, 2018.)
The week had already started on a grim note with CoinMarketCap excluding some South Korean exchanges from its averages as there was an extreme divergence in prices from the rest of the world and limited arbitrage opportunity. The Bitcoin price, Litecoin price, and Ripple XRP price had all taken a hit except for the Ethereum price, which had recovered later.
However, more details are required before it can be confirmed if this is indeed the plan. It has already been made clear by South Korea’s Financial Services Commission that the regulator has drafted a separate policy on trading in cryptocurrencies, which was under discussion at the National Assembly. (Source: “South Korea Steps Up Cryptocurrency Inspections at Banks,” The Wall Street Journal, January 8, 2018.)
Hence, it appears that what South Korean authorities want is strict regulation, not closure.
So, it is not like the exchanges are being closed down today or even this week or the next. Moreover, South Korean authorities have been taking steps for quite some time now to clamp down on the frenzy that has swept up even housewives and students who dream of getting rich quickly.
As we wrote earlier, the South Korean financial authorities were taking steps to control the speculation in Bitcoin. These included using real names instead of anonymous names, prohibiting minors and foreigners from opening accounts, and introducing taxes on cryptocurrency transactions. Bitcoin, the most popular digital currency, took a hit as a result of these developments while the Ripple XRP price soared.
Following these steps, what the South Korean authorities have done now is visit a few exchanges to check the details of their cryptocurrency transactions. They have also been inspecting banks to ensure they were complying with the anti-money laundering rules.
In all likelihood, the exchanges that may not be complying with KYC regulations or are not paying proper taxes would be the ones that would face closure. And gradually, the BTC price together with the ETH price, XRP price, and LTC price should recover in the coming days.
As the cryptocurrency mania takes over the world, authorities are trying to understand and control it so that it does not disrupt other markets or the functioning of other financial institutions. A South Korean cryptocurrency had filed for bankruptcy last month after it was hacked twice.
The authorities are worried over such incidents and traders’ addiction, which borders on gambling, as some South Korean crypto traders may even be putting in their life savings to trade in digital coins. In case of a crypto market crash, the repercussions would definitely be ominous.
The authorities clearly want to avoid such a scenario and are therefore planning steps to stop this heightened speculation and herd behavior. However, an outright closure of crypto exchanges looks unlikely. We shall wait for more news inflow to clarify this matter.