Seoul (Reuters): 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 as the nation’s police and tax authorities raided local exchanges on alleged tax evasion.
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 has skyrocketed over the last year.
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 percent in midday trade to 18.3 million won ($17,064.53) after the minister’s comments. It still trades at around a 30 percent premium compared to other countries.
Bitcoin was down more than 10 percent on the Luxembourg-based Bitstamp at $13,199, after earlier dropping as low as $13,120, its weakest since Jan. 2.
South Korea’s cryptocurrency-related shares were also hammered. Vidente and Omnitel, which are stakeholders of Bithumb, skidded by the daily trading limit of 30 percent each.
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 percent surge last year has stoked huge demand for cryptocurency in South Korea, drawing college students to housewives and sparking worries of a gambling addiction.
“Virtual coins trade at a hefty premium in South Korea, and that is herd behaviour showing how strong demand is here,” Park said. “Some officials are pushing for stronger and stronger regulations because they only see more (investors) jumping in, not out.”