The South Korean government, through Justice Minister Park Sang-ki, has announced that the nation will be issuing a ban for trading cryptocurrency on domestic exchanges.
The proposal comes as Bitcoin prices brought about turmoil in the virtual currency market after tax authorities and national police raided domestic exchanges on what was referred to as alleged tax evasion.
Recently, the demand for cryptocurrency-particularly Bitcoin-has skyrocketed globally, with policymakers all over the world struggling to come up with regulations to control and monitor the market.
Hours after the proposed ban was announced, it was received with sharp reactions in the exchanges market. A government spokesperson then said that the ban on the nation's virtual currency exchanges was one of many measures to be considered as the bill had not yet been fully reviewed with finality.
At Park Sang-ki's office, a press official said that the proposed ban on Bitcoin trading had been looked into and was only announced after thorough discussion with other important stakeholders, government agencies and financial regulators, including the South Korean Ministry of Finance.
After the bill is fully drafted, it will require a two-thirds majority vote of the total 297 members of the National Assembly for instant legislation of the ban. This process, with the sharp reaction that comes with the announcement, may take up to years.
The South Korean government has been making headlines for a while now for its markedly tough stance regarding virtual currency, especially associated with the crimes that come with it. This recent proposed ban has triggered massive Bitcoin sell-offs on both global and local exchanges.
The country has been struggling to control and regulate Bitcoin trading operators for a year now due to exploded interest in the market.
Last fall, the financial service commission announced that it would ban initial coin offerings (ICOs) in the virtual currency trading industry. ICOs are simply web-based fundraising for cryptocurrency startups, who raise cash by selling off new coins for more popular ones, including Ethereum and Bitcoin.
In South Korea, major virtual currencies such as Bitcoin are worth more than in other countries.
South Korea's Domestic Exchanges
On the country's domestic exchanges, the local value of Bitcoin has plunged to 22.5 percent in trade to over $18.3 million after the Justice Minister's announcement. As of late January, it is still trading as high as 32 percent as compared to other nations globally.
Bitcoin BTC=BTSP reduced by over 10 percent on Luxemburg based Bitstamp at $13,200, only months since its earlier drop went down to as low as $13,120.
Cryptocurrency-related shares in South Korea were also not spared. Vidente and Omnitel, which happen to be the main stakeholders of Bithumb, were affected by the new daily trading limit of 29 percent each.
Joint Petition
By evening on the day of the Justice Minister's announcement, hundreds of thousands of South Koreans had prompted to join in a petition asking the president's office to intervene and stop the cryptocurrency ban. The heavy traffic on the website made it intermittently unavailable for over two hours.
South Korea has a dozen or more virtual currency exchanges, according to the country's Blockchain Industry Association.
The thriving Bitcoin trading industry has drawn attention among global regulators, although many nations' central banks have kept away from supervising Bitcoins themselves.
Meanwhile, the increased attention on Bitcoin is, in part, causing cybercriminals to shift to other virtual currencies.
The news on the proposed ban in South Korea came as tax agencies and police raided the country's largest cryptocurrency exchanges such as Coinone and Bithumb over tax evasion allegations.
Officials at Coinone stated that the National Tax Service agents raided the company's office asking them to disclose their tax papers. Bithumb, on the other hand, confirmed the raid and promised to cooperate with investigation.
The South Korean Tax Office and National Police Service, however, declined to confirm any details about the raid on domestic exchanges. The raid comes as South Korea's Ministry of Finance is considering methods of taxing the cryptocurrency market after successfully inspecting eight local banks which offer virtual currency accounts.
Immediately after South Korea hit headlines over the potential cryptocurrency exchange ban, many Bitcoin investors began cashing out most of their funds. On Monday morning, CoinMarketCap removed Bitcoin prices from South Korean exchanges since the coin was down around 12 percent, which triggered widespread sell-off by investors.
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