South Korea’s finance minister on Friday sought to calm the cryptocurrency market after an announcement a day ago that the country’s justice ministry was planning a ban on crypto exchanges, sending prices of digital currencies such as Bitcoin sharply lower.
“The issue of shutting down exchanges, told by the justice minister yesterday, is a proposal by the justice ministry and it needs consultations among ministries,” Finance Minister Kim Dong-yeon said, the South Korean news agency Yonhap reported Friday.
Justice Minister Park Sang-ki had said on Thursday that his ministry was preparing legislation that bans any transactions based on virtual currencies via exchanges due to grave concerns regarding the excessive exuberance in the cryptocurrency market.
Following the news, the price of Bitcoin plunged as much as 14 percent to below $13,000, and over $100 billion was wiped out in market capitalization. As of 4.37 am ET, Bitcoin was down 0.63 percent at $13,500 and Ethereum was lower by 4.01 percent at $1,184.19, on coinbase.
The total market cap was $696.25 billion as of 4.35 am ET on Friday versus $691.00 billion at the same time on Thursday.
The South Korean government has been voicing concerns for the past several months over the cryptocurrency craze, as the currency surge gained steam despite severe falls in between.
The country has witnessed intense interest in cryptocurrencies such as Bitcoin with its citizens, both young and old, investing heavily in these with the hope of making a quick profit.
South Korea hosts several crypto exchanges, but prices of cryptocurrencies in the country tend to be much higher than elsewhere, reportedly over 40 percent, as buyers exceed those willing to sell. Such premium is called “Kimchi premium” in the local media, in an allusion to the famous Korean dish of spicy pickled cabbage.
The justice minister noted that foreign investors are considering the Korean trade in virtual currencies as abnormal due to the excessive prices relative to other markets across the world.
Different Korean market regulators have initiated a joint effort to curb the unbridled trading in cryptocurrencies. Authorities hope that a shutdown of crytptocurrency exchanges would minimize side effects of cryptocurrency trading such as fraud using cryptocurrencies, cyber hacks on cryptocurrency exchanges, and irrationally overheated speculation.
At the start of the week, South Korea’s Financial Intelligence Unit and Financial Services Commission had launched a probe into six commercial banks, which were offering trading accounts to crytpocurrency exchanges in the country.
The Bank of Korea has reportedly formed a task force to study the impact of cryptocurrencies on the financial system.
“Cryptocurrencies are highly likely to be used as a means to money laundering due to their nature of anonymity and non-face-to-face transaction,” the FSC had said.
Joint inspections were planned for Woori Bank, Kookmin Bank, Shinhan Bank, NongHyup Bank, Industrial Bank of Korea and Korea Development Bank from Monday through Thursday.
The Yonhap reported that Shinhan Bank, one of the main retail banks, and the state-run Industrial Bank of Korea decided not to offer anonymous cryptocurrency accounts for cryptocurrency trading.
As the so-called “virtual accounts” offered to cryptocurrency exchanges were making it more difficult to identify real names of account holders, the country is implementing new rules that will require real-name cryptocurrency transactions, starting January 20.
Tax authorities also visited leading digital currency exchanges, Bithumb and Coinone, this week on concerns over tax evasion.
The number of accounts linked to cryptocurrency exchanges totaled 111 with a combined deposit value estimated around 2 trillion won or $1.8 billion, Yonhap reported. More than 2 million Koreans own digital currencies.
The country has sought deeper co-operation with regulators in China and Japan in curbing intense speculation in cryptocurrencies.
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