The South Korean government has said it plans to impose a ban on cryptocurrency trading, sending Bitcoin prices down and causing turmoil on the cryptocurrency market.
"There are great concerns regarding virtual currencies and the justice ministry is basically preparing a bill to ban cryptocurrency trading through exchanges," Justice Minister Park Sang-ki said at a press conference on Thursday.
A crackdown on cryptocurrency in China forced investors to turn to South Korea and Japan, currently the two main sources of global demand for Bitcoin and other virtual currencies. A massive influx of money has resulted in exaggerated prices and the South Korean government has recently stepped up efforts to deal with what it calls "irrationally overheated" cryptocurrency speculation.
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The minister did not disclose any further details on the planned shutdown, but promised to work jointly with the government task force. A press official also said that the decision was made after "enough discussion" with other government agencies, including the finance ministry and financial regulators, according to Reuters.
The announcement has triggered a selloff in Bitcoin, the world’s most popular virtual currency, on both local and foreign exchanges. The local price of the cryptocurrency dropped as much as 21 percent, but still trades with a 30 percent premium compared to other countries. According to CoinDesk, Bitcoin plunged more than 12 percent following the statement.
Ethereum, which is also very popular in South Korea, also dropped 14 percent on the news.
Raids on Cryptocurrency Exchanges
This week, police and tax agencies raided South Korea’s largest cryptocurrency exchanges, including Coinone and Bithumb, for alleged tax evasion.
The National Tax Service raided our office this week," an official at Coinone told Reuters. The source said police have been investigating the company "since last year" over alleged "gambling."
Bithumb, the second largest cryptocurrency operator in South Korea,
"We were asked by tax officials to disclose paperwork and things yesterday," an official at Bithumb told Reuters on the condition of anonymity.
Tightening the Screws
On Monday, South Korean regulators inspected six local banks that offered cryptocurrency accounts, looking into potential violations of anti-money laundering rules.
"Virtual currency is currently unable to function as a means of payment and it is being used for illegal purposes like money laundering, scams and fraudulent investor operations," Choi Jong-ku, chairman of South Korea’s Financial Services Commission (FSC), said.
The move has left market investors anxious, contributing to a major correction in the cryptocurrency market, for the second time in less than three weeks.
According to market analysts, one of the main reasons behind the slump was the fact that Coinmarketcap.com on Monday, which ranks cryptocurrencies globally based on market cap and trade volume, removed South Korean cryptocurrency prices from its listing due to "the extreme divergence in prices from the rest of the world."