The South Korean government on Thursday said it plans to ban cryptocurrency trading, sending bitcoin prices plummeting and throwing the virtual coin market into turmoil.
The clampdown in South Korea, a crucial source of global demand for cryptocurrency, came as policymaker around the world struggled to regulate an asset whose value skyrocketed in 2017.
Justice minister Park Sang-ki said the government is preparing a bill to ban trading of the virtual currency on domestic exchanges.
“There are great concerns regarding virtual currencies and justice ministry is basically preparing a bill to ban cryptocurrency trading through exchanges,” said Park at a press conference, according to the ministry’s press office.
A press official said the proposed ban on cryptocurrency trading was announced after “enough discussion” with other government agencies including the nation’s finance ministry and financial regulators.
Once a bill is drafted, legislation for an outright ban of virtual coin trading will require a majority vote of the total 297 members of the National Assembly, a process that could take months or even years.
The government’s tough stance triggered a selloff of the cyrptocurrency on both local and offshore exchanges.
The local price of bitcoin plunged as much as 21 per cent in midday trade to 18.3 million won (12,638.52 pounds) after the minister’s comments.
It still trades at around a 30 per cent premium compared to other countries.
Bitcoin was down more than 10 per cent on the Luxembourg-based Bitstamp at 13,199, dollars after earlier dropping as low as 13,120 dollars, its weakest since Jan. 2.
Once enforced, South Korea’s ban “will make trading difficult here, but not impossible,” said Mun Chong-hyun, chief analyst at EST Security.
“Keen traders, especially hackers, will find it tough to cash out their gains from virtual coin investments in Korea but they can go overseas, for example Japan,” Mun said.
Park Nok-sun, a cryptocurrency analyst at NH Investment & Securities, said the herd behaviour in South Korea’s virtual coin market has raised concerns.
Indeed, bitcoin’s 1,500 per cent surge in 2017 stoked huge demand for cryptocurrency in South Korea.
“Some officials are pushing for stronger and stronger regulations because they only see more (investors) jumping in, not out,” Park said.
By Thursday afternoon, the Justice Ministry’s announcement had prompted more than 55,000 South Koreans to join a petition asking the presidential Blue House to halt the crackdown on the virtual currency, making the Blue House website intermittently unavailable due to heavy traffic, the website showed.
There are more than a dozen cryptocurrency exchanges in South Korea, according to Korea Blockchain Industry Association.
The proliferation of the virtual currency and the accompanying trading frenzy have raised eyebrows among regulators globally, though many central banks have refrained from supervising cryptocurrencies themselves.
The nation’s largest cryptocurrency exchanges like Coinone and Bithumb were raided by police and tax agencies this week for alleged tax evasion.
The raids follow moves by the finance ministry to identify ways to tax the market that has become as big as the nation’s small-cap Kosdaq index in terms of daily trading volume.
Some investors appeared to have taken preemptive action.
“I have already cashed most of mine (virtual coins) as I was aware that something was coming up in a couple of days,” said Eoh Kyung-hoon, a 23-year old investor.
Bitcoin sank on Monday after website CoinMarketCap removed prices from South Korean exchanges, because coins were trading at a premium of about 30 per cent in Asia’s fourth largest economy.
That created confusion and triggered a broad selloff among investors.
Bithumb, the second largest virtual currency operator in South Korea, was also raided by the tax authorities on Wednesday.