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South Korea plans to ban cryptocurrency trading, rattles market

Reuters  |  SEOUL 

By and Dahee Kim

SEOUL (Reuters) - South Korea's said on Thursday it plans to ban cryptocurrency trading, sending prices plummeting and throwing the virtual coin market into turmoil as the nation's police and authorities raided local exchanges on alleged evasion.

The clampdown in South Korea, a crucial source of global demand for cryptocurrency, came as policymakers around the world struggled to regulate an asset whose value has skyrocketed over the last year.

Justice said the was preparing a bill to ban trading of the virtual on domestic exchanges.

"There are great concerns regarding virtual currencies and the is basically preparing a bill to ban cryptocurrency trading through exchanges," Park told a conference, according to the ministry's press office.

After the market's sharp reaction to the announcement, the nation's Presidential office hours later said a ban on the country's virtual coin exchanges had not yet been finalised while it was one of the measures being considered.

A press at the said the proposed ban on cryptocurrency trading was announced after "enough discussion" with other agencies, including the nation's 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 cryptocurrency on both local and offshore exchanges.

The local price of 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.

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.

Once enforced, South Korea's ban "will make trading difficult here, but not impossible," said Mun Chong-hyun, at

"Keen traders, especially hackers, will find it tough to cash out their gains from virtual coin investments in but they can go overseas, for example Japan," Mun said.

Park Nok-sun, a at & 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.

"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 to halt the crackdown on the virtual currency, making the website intermittently unavailable due to heavy traffic, the website showed.

REGULATORY CONUNDRUM

There are more than a dozen cryptocurrency exchanges in South Korea, according to Blockchain Industry Association.

The proliferation of the virtual and the accompanying trading frenzy have raised eyebrows among regulators globally, though many central banks have refrained from supervising themselves.

The of South Korea's proposed ban came as authorities tightened their grip on some cryptocurrency exchanges.

The nation's largest cryptocurrency exchanges such as and were raided by police and agencies this week for alleged evasion.

The raids follow moves by the ministry to identify ways to the market that has become as big as the nation's small-cap 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.

sank on Monday after website CoinMarketCap removed prices from South Korean exchanges, because coins were trading at a premium of about 30 percent in Asia's fourth-largest economy. That created confusion and triggered a broad selloff among investors.

An at told that a few officials from the National Service raided the company's office this week. The official, who spoke on condition of anonymity, said that was cooperating with the investigation.

Bithumb, the second largest virtual operator in South Korea, was also raided by the authorities on Wednesday.

"We were asked by the officials to disclose paperwork," an at said, requesting anonymity due to the sensitivity of the issue.

The nation's office and police declined to confirm whether they raided the local exchanges.

South Korean financial authorities had previously said they are inspecting six local banks that offer virtual accounts to institutions, amid concerns the increasing use of such assets could lead to a surge in crime.

($1 = 1,069.9600 won)

(Additional reporting by Hyonhee Shin; Editing by Shri Navaratnam and Jacqueline Wong)

(Only the headline and picture of this report may have been reworked by the Business Standard staff; the rest of the content is auto-generated from a syndicated feed.)

First Published: Thu, January 11 2018. 15:05 IST
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