Picture: BLOOMBERG/CHRIS RATCLIFFE
Picture: BLOOMBERG/CHRIS RATCLIFFE

Hong Kong — Bitcoin slumped to its lowest level since Christmas day as South Korea’s justice minister reiterated his proposal to ban local cryptocurrency exchanges, fuelling concern a state crackdown will erode demand for digital coins in one of the world’s biggest markets.

The minister’s comments to reporters on Thursday were later downplayed by a spokesman for President Moon Jae-in, who said the proposal is one among several and that nothing has been finalised. Korea’s government unveiled multiple options for cryptocurrency exchange regulation on December 28, including allowing trading to continue under tighter supervision.

Governments around the world are increasing scrutiny of cryptocurrencies as soaring prices attract everyone from home-based investors to Wall Street banks. Korea emerged as something of a ground zero for the speculative mania, playing host to several of the world’s most active exchanges. Bitcoin prices in the country are persistently higher than those in the US.

The boom has alarmed Korean authorities. The country’s prime minister has said that cryptocurrencies might corrupt the nation’s youth, while the government warned in December that it would be conducting on-site investigations of exchanges. The finance ministry is studying a cryptocurrency tax.

"For the last few months the Korean government has been making it very clear they want to bring this speculative activity under control," said Thomas Glucksmann, Hong Kong-based head of APAC business development with cryptocurrency exchange Gatecoin. "This isn’t really too much of a surprise."

Bitcoin dropped as much as 12% to $12,801, before paring the loss to about 5% at 9.10am New York time, according to data compiled by Bloomberg. The cryptoccurrency is still up more than 1,500% over the past 12 months. Ripple trimmed its 21% tumble to a 14% drop, while ethereum slumped 5%.

One of Korea’s biggest digital currency venues, Bithumb, said on Thursday that it met briefly with tax officials this week. The exchange disputed a Reuters report that its offices had been raided by tax and police agents. When contacted by Bloomberg, Korea’s tax authority said it did not comment on investigations due to privacy laws.

Coinone, another exchange mentioned in the Reuters report, did not reply to requests for comment.

An unidentified spokesman told the Financial Times: "They asked for some data such as cryptocurrency trading volume, our exchange’s sales and whether we are paying corporate tax well."

Police have been investigating Coinone’s margin-trading service since last year, according to an official who asked not to be named citing policy. He said that no other large exchanges were under police investigation.

A range of negative comments from investors and governments have undercut the market this week.

Ripple, for example, is down for a fourth successive day, something it has not done since October. The market was "reeling" on Thursday over comments by Warren Buffett, eToro Senior Market Analyst Mati Greenspan said in a note today. The legendary investor said crypto gains would be fleeting.

"I can say almost with certainty that they will come to a bad ending," Buffett told CNBC. "We’ll never have a position in them.

"I get into enough trouble with things I think I know something about," he said, "why in the world should I take a long or short position in something I don’t know anything about."

Buffett said that there were some investments he would consider, if they were available.

"I know this, if I could buy a five year put on every one of the cryptocurrencies, I would be glad to do it, but I would never short a dime’s worth," he said.

There have also been reports that China’s government is discouraging mining in the country, home to the majority of that process.

"Some interpreted these announcements to mean China will completely shut down mining operations," said Bloomberg New Energy Finance China analyst Sophie Lu said. "Others feel that regulators are only tightening enforcement" on a process that in any event can move to other countries without threatening bitcoin’s future.

At the same time, buying interest seems to swell unabated. The world’s biggest cryptocurrency exchange, Hong Kong-based Binance.com, said it was adding "a couple of million" registered users every week, with 240,000 people signing up in just an hour on Wednesday.

Russia’s Finance Ministry wants to allow trading cryptocurrencies on "official" exchanges, but Bank of Russia is against any such trading, Deputy Finance Minister Alexey Moiseev said Thursday.

In Korea, it is unclear whether the justice ministry’s proposal will be approved by other government ministries and parliament. The plan has spurred a backlash on social media, while a petition opposing the measure on the president’s website has attracted more than 54,000 names.

Work-around

Even if legislators push forward with the exchange ban, local investors are likely to find ways to keep buying cryptocurrencies, said Mike Kayamori, head of Tokyo-based exchange Quoine, which counts Koreans among its customers.

"There are always underground exchanges" and over-the-counter platforms, he said. "They’ll probably convert their money into bitcoin there, and then start trading offshore."

Bloomberg

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