What's going on?
News that South Korea may ban cryptocurrency trading exchanges heaped pressure on bitcoin, contributing to a price slide that has left the libertarian lira down about 30% from its mid-December peak.
What does this mean?
Despite signs that South Korea’s justice ministry jumped the gun in announcing the proposed ban, the news is further evidence that regulators are increasingly scrutinizing cryptocurrencies. In related news, some of South Korea’s biggest crypto exchanges were raided earlier this week by police concerned about possible tax evasion. South Korea is a major center of cryptocurrency trading, so any regulatory roadblocks thrown up there risk hurting investor demand and putting downward pressure on prices – at least in the near term.
Why should I care?
For markets: Big bitcoin selloffs have been par for the course thus far.
Bitcoin has been around for over five years, during which time it’s climbed exuberantly in value. But there have been numerous stark selloffs of 30% or more along the way. The recent drop by no means precludes bitcoin – or other cryptocurrencies, for that matter – surging once again to hitherto undreamt-of highs. But it certainly highlights their riskiness. For now, at least, these “currencies” are not a stable store of value – as those buying into the craze in December have learnt to their cost.
The bigger picture: Greater regulation could be good for cryptocurrencies in the long run.
While new rules might make it more difficult for people to take a punt on cryptocurrencies, the emergence of things like better protection for investors and standardized trading venues should encourage confidence in cryptocurrencies [tweet this] (at least to the extent that they’re recognized as genuine investments with inherent value). It’s arguable that such measures should therefore be supported by proponents of bitcoin and the gang.