South Korea: Government sounds warning on bitcoin boom

| 13 Dec 2017

South Korean officials have sounded caution about the current bitcoin frenzy that is luring not just seasoned investors, but ordinary people with little prior experience in virtual currencies, with its soaring price.

The price of Bitcoin hit $10,000 recently on South Korean exchanges, hours before traders in the United States reached similar levels. Trading between the Korean won and Ether, a virtual currency that is Bitcoin’s most valuable competitor, was nearly as active as trading between the US dollar and Ether, even though the US population is six times that of South Korea, reported the New York Times.

And for some other cryptocurrencies, the won accounted for more trading than the dollar. These facts are remarkable because the country caught on to such currencies long after Japan, China and the US.

Government concern

The sudden hike in trading caused the South Korean Prime Minister Lee Nak-Yeon to express concern after a cabinet meeting where he said that cryptocurrencies are causing speculation that can create a “pathological social phenomenon” if not addressed. This came a day after Finance Minister Kim Dong-yeon said the government is considering taxes on cryptocurrencies.

He called on the on the Ministry of Justice and other agencies to take a closer look. South Korean regulators have already announced a ban on so-called initial coin offerings, in which entrepreneurs sell custom virtual currencies.

But the exchanges where existing virtual currencies are traded come under essentially no regulatory oversight in South Korea, unlike in the United States and Japan, noted the NYTimes report.

Mr Lee said he was particularly worried about young people who have gotten caught up in the markets, citing cases where they made quick money and used these currencies in illegal activities like drug dealing or multilevel marketing for fraud.

But that is not to say the government will crack down hard on the sector. “The South Korean ministry of finance and strategy have drafted taxation policies on Bitcoin trading. But, regulatory frameworks around Bitcoin taxation will not be implemented in the 2018 amendment of the tax law," said South Korean Deputy Prime Minister Kim Dong-yeon, as quoted in Cointelegraph.

Ordinary folk investing

The report cited the case of 77-year-old Choi Whal-soo, who was visiting one of the country’s many new virtual currency exchanges, with a plan to put about a quarter of his remaining $18,000 in savings into virtual currencies.

Meanwhile, 16-year-old high school student Chung Gong-jin, said he had been drawn to Bitcoin because it has gone up so quickly, and doesn’t require the same amount of knowledge as stock investing. He is part of a 100-person group that meets to talk about investments and attend virtual currency conferences.

Cryptocurrency enthusiasts themselves are concerned about the sudden rush into Bitcoin and Ether, said the NYTimes. They say investors are often getting in with little grasp of how virtual currencies work, like the decentralised network where all the transaction records are kept, or why they may be valuable over the long term.

The South Korean Bitcoin exchanges that have sprung up over the past year have done their best to stoke the excitement and some have set up store fronts where investors can come to buy in and learn more, unlike in the US and Japan, where exchanges are entirely online.

Asia Advisers Network puts you in the know. Connect with us on Facebook and subscribe to our weekly newsletter here.