South Korea Announces Crackdown on Crypto; Bitcoin Price Plunges
When it comes to Bitcoin, you can count on one thing – volatility.
The price of Bitcoin plunged more than 11% Thursday morning, dipping below the $14,000 level after the South Korean government announced plans to more tightly regulate cryptocurrencies.
South Korea has turned into a major hub for cryptocurrencies, as Bitcoin and others have surged over the last year. In one 24-hour period earlier this month, about 21% of the world’s Bitcoin trades on fee-charging venues involved the Korean won, according to Coinmarketcap.com. The surge in crypto interest recently led South Korean Prime Minister Lee Nak-yeon to publicly worry it could “corrupt the nation’s youth.”
Now the government has announced concrete efforts to rein in cryptocurrencies, according to Bloomberg. Regulations could even go as far as shutting down exchanges.
South Korea will require real-name cryptocurrency transactions and impose a ban on the offering of virtual accounts by banks to crypto-exchanges, according to a statement from the Office for Government Policy Coordination. Policy makers will review measures including the closure of crypto-exchanges suggested by the Ministry of Justice and take proper measures swiftly and firmly while monitoring the trend of the speculation.”
South Korea is not the first country to move toward stricter regulation of cryptocurrencies. In September, China prohibited trading cryptos on domestic exchanges and outlawed initial coin offerings. Chinese officials announced their regulatory crackdown on cryptos right after emerging markets fund manager Mark Mobius warned that governments around the world will begin clamping down on digital currencies because of their use in illicit financing, terrorism, and drug trafficking. He said increased regulation in the digital money world is going to mean a rush back to gold.
Austrailia has looked to regulate cryptocurrencies under anti-money laundering laws. Japan has also put regulatory schemes in place.
It’s not surprising that governments are moving to regulate cryptocurrencies. The decentralized nature of Bitcoin and other cryptos threaten to undermine the central bank controlled global financial system. Just this week, economist Paul Krugman called Bitcoin “evil,” saying it “looks like it was designed as a weapon intended to damage central banking and money issuing banks.”
Bloomberg listed Bitcoin’s “stateless appeal” as one of the reasons it’s so popular in South Korea.
Bitcoin’s stateless status appeals to some Koreans who’ve grown wary of keeping their savings in a country that shares a border with Kim Jong Un’s increasingly belligerent regime in North Korea, according to Kwak Keumjoo, professor of psychology at Seoul National University. Political turmoil at home may also be adding to the cryptocurrency’s appeal, she said. President Park Geun-hye was ousted in March after an influence-peddling scandal that involved the nation’s biggest companies. ‘People want to take comfort in something outside and beyond the country,’ Kwak said.”
This feature of cryptocurrencies also adds to their volatility. It seems certain governments will continue efforts to crack down, regulate, control, and tax Bitcoin. This isn’t to say there is no upside to cryptocurrencies. The decentralized nature of cryptos makes them very difficult to regulate. And a lot of people have made a lot of money on Bitcoin. But cryptocurrencies volatility also makes them risky.
At SchiffGold, we recommend a diversified approach to investing in Bitcoin. Buying gold and silver is a great way to diversify your cryptocurrency portfolio. You can even buy gold and silver with Bitcoin. In the world of investing, it’s never wise to put all of your eggs in one proverbial basket. Diversifying your cryptocurrency portfolio with precious metals can help mitigate some of the potential downsides and put you in an overall stronger financial position.
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