Bitcoin slumped as South Korea’s justice minister reiterated his proposal to ban local cryptocurrency exchanges, fueling concern that a government crackdown will erode one of the world’s biggest sources of demand for digital currencies.
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 finalized. Korea’s government unveiled multiple options for cryptocurrency exchange regulation on Dec. 28, including allowing venues to operate under tighter supervision.
Bitcoin dropped as much as 12% to $12,801, before paring its loss to about 6.5% at 9:51 a.m. London time, according to data compiled by Bloomberg. Ripple fell 11% and ethereum slumped 3%.
Governments around the world are increasing scrutiny of cryptocurrencies as soaring prices attract everyone from mom-and-pop investors to Wall Street banks. Korea has 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 U.S.
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 Ltd. “This isn’t really too much of a surprise.”
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 doesn’t comment on investigations due to privacy laws.
Coinone, another exchange mentioned in the Reuters report, didn’t 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 added that no other large exchanges are under police investigation.
Even if Korean lawmakers push forward with an 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.”