South Korea's threat of banning the cryptocurrency trade has gone one notch higher.
The first report came as early as January 11, with the South Korean Ministry of Justice affirming speculations on its move to close all cryptocurrency exchanges in the country.
The conversation also raged in the South Korean parliament.
Lawmakers raised several questions concerning the long-term effect of virtual coin exchanges on the integrity of the country's monetary policies.
The head of the South Korean Financial Services Commission was heard echoing the sole intention of the government to outlaw all forms of cryptocurrency trade that occur domestically. Additionally, the Commission Chief went further to highlight the specificity of the crackdown on all exchanges that are known to operate in violation of the law.
The South Korean Cryptocurrency Frenzy
The anticipated cryptocurrency onslaught in South Korea sheds a dark shadow on the virtual exchange market that has been considered as one of the most robust crypto markets in the world. Bitcoin and Ethereum are the most popular virtual coins in the South Korean crypto market.
The cryptocurrency industry website, CryptoCompare, highlights the significance of crypto assets in influencing the economic behaviors of the country's crypto market. According to the site, about 10 percent of Ethereum is traded against the South Korean national currency.
This phenomenon is considered among the most significant concentrations of fiat currencies after the dollar. In the same market, the South Korean official currency competes with 5 percent of all Bitcoin.
South Koreans have long been known to be significant players in keeping the global cryptocurrency frenzy alive. The South Korean cryptocurrency market resembles that of the gambling industry. It is typically driven by speculation as a critical determinant in influencing the economic paths taken by the nation's most popular virtual coins.
The value of South Korean Bitcoin and Ethereum is known to be significantly overpriced compared to that of other crypto markets in the world. For instance, Bitcoin trading attracted a 31 percent premium, comparable to the average Bitcoin price at one of the largest exchanges in South Korea, Bithumb.
The South Korean cryptocurrency craze runs beyond the country's retail industry. The nation's largest organizations have been known to join the cryptocurrency bandwagon enthusiastically. This is seen through the establishment of policies to effect cryptocurrency investments in virtual currency and related innovations.
A good example is Nexon, a leading video game corporation in South Korea. The company recently acquired Korbit, a platform that deals in cryptocurrency exchanges.
Dunamu is also another organization that has led the forefront in pumping large amounts of money into the South Korean crypto market. This internet provider established a cryptocurrency exchange called Upbit, which launched last October.
Further, DB Group forged partnership with Sentbe last August to employ Bitcoin as a medium of exchange in some of its operational transactions.
The largest South Korean corporation, Samsung, has also been involved in discussions about blockchain technology and the cryptocurrency trade. In 2017, the company's information technology unit, Samsung SDS, rolled out a project that employs cryptographic ledgers in managing logistic operations.
Samsung would engage blockchain technology in monitoring and evaluating cargo shipment systems in real time. During the same period, Samsung SDS became a member of the Enterprise Ethereum Alliance, which develops business software running on blockchain technology.
These examples highlight the excitement elicited by the South Korean retail and corporate industries in supporting technological innovations that keep the cryptocurrency trade alive.
The Crackdown
The recent turn of events illuminates the worldwide concern for crypto assets regulation when the value has risen monumentally over the past year.
The South Korean Presidential Office responded to concerns raised by the country's Justice Ministry following the January 11 announcement to ban crypto trading.
It claimed that while the office supported the ban, several measures were being engineered to ensure the validity of the process to fulfil its full mandate.
The Justice Ministry, however, maintained that the proposed anti-cryptocurrency bill was the product of thorough inter-agency talks that included the wisdom of the Finance Ministry and other regulators.
There are more than 12 cryptocurrency exchanges in South Korea, which are listed by the Korea Blockchain Industry Association. Two of the largest cryptocurrency exchanges in South Korea were hit by raids carried out by the government.
Coinone and Bithumb were accused of tax evasion by law enforcement officers who raided their agencies earlier this month. This move was in response to a call by the Finance Ministry to curb financial crime that had taken root in the cryptocurrency trade.
The Ministry had sought to develop mechanisms of imposing a tax on the trading activities in the South Korean crypto market. This followed expert analytical events that placed the country's crypto trade at par with large organizations that registered significantly high trading volumes per diem.
In another plot twist, South Korean authorities had launched investigations to unravel mysteries surrounding six local banks that had added virtual currency accounts to their service portfolios.
These reports would then be used by institutions to trade in cryptocurrencies, even amid the increasing association of crypto assets with financial crime.
The South Korean government's clear stance against cryptocurrency trading triggered a series of ripples that shook local and international crypto markets. The Justice Minister's comments alone led to the plummeting in Bitcoin prices by a whopping 21 percent as of mid-January 2018.
In the same taste, Youbit was forced into total collapse after the cryptocurrency exchange suffered two cyberattacks in one year, which led to the loss of 4, 000 Bitcoins. South Korea's intelligence systems tied the massive hit to North Korea. Yapizon was also affected by a cyberattack that substantially undermined the South Korean cryptocurrency market.
Various financial experts agree that the proposed ban will take a heavy toll on global cryptocurrency markets. In South Korea, cryptocurrency traders will experience a lot of difficulty in salvaging the value of their investments by cashing their virtual coins.
Descriptive information about South Korea's crypto markets is as intriguing as the behavior of the country's cryptocurrency environment. Park Nok-sun, a cryptocurrency analyst, describes South Korea's investors as eliciting herd behavior, a key reason for the cryptocurrency boom and subsequent plummeting of Bitcoin markets.
Nevertheless, some investors had anticipated the cryptocurrency disaster and taken preemptive action. An example is that of Eoh Kyung-hoon, who cashed his cryptocurrency funds in the expectation of a dip in their value.
As expected, South Korea's ban on cryptocurrencies will take a clear course provided by law. The drafting of a bill is usually the first step in this process.
Legislation for the ban will have to pass at the National Assembly where a majority vote will guarantee the success of the decision. Arguably, this process may take several months to materialize.
What Next?
The South Korean predicament will shake the global cryptocurrency trade to its roots.
The best-performing virtual currencies have already shown a steep decline in their value over the first few weeks of January.
Notwithstanding, it is appreciable that South Korea is not threatening the cryptocurrency trade for the first time.
It is also a common understanding that each time the country's leaders criminalize the cryptocurrency industry, the increased volatility has always been an accompanying effect of such events.
A valid question can be posed concerning the increased paranoia of South Korean authorities towards the cryptocurrencies. The country's emotion towards virtual coins is attributable to its troubled history with North Korea.
North Korea has been blamed for various cyberattacks that have threatened the livelihood of South Koreans in the past. The fall of Youbit, a South Korean cryptocurrency exchange, provides a plausible reason for South Korea to be skeptical about the proliferation of the local crypto trade.
The South Korean National Police Agency has pointed out the vulnerability of the nation's Bitcoin exchanges to North Korean cyberattacks.
Recent cases, in late 2017, include spear-phishing attacks against cryptocurrency exchanges in South Korea by North Korean hackers. In this regard, experts agree that digital currencies offer both risks and opportunities in equal measure.
The South Korean threats on banning cryptocurrencies have so far elicited mixed reactions among the Korean public. While some see it as a move to curb financial crime, an online petition has already been launched to lobby for support against what is seen as the "theft of South Korean dreams."
Thousands of Korean locals feel that the government bears no right to bar them from reaping financial benefits promised by the cryptocurrency trade. Time will tell.
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