South Korea’s government has been signalling that it plans to crack down on cryptocurrency trading. Exactly how it will do this remains vague. But just the threat of action has been enough to drive a sell-off across the market globally. Bitcoin, for example, has lost nearly a quarter of its value in the past week. And so on Wednesday the virtual currency – which last month looked set to breach the $20,000 (£14,500) mark – was trading closer to $12,000.Prices of cryptocurrencies are volatile at the best of time. Rises and falls of 10% or more in a day are not uncommon. And pinning down rationale for those sharp movements often involves guesswork. But it seems that events in one relatively small South East Asian nation can have a significant effect on the market.How important is South Korea to virtual currency markets? South Korea is the third-biggest market in the world for Bitcoin trades, behind Japan and the US, according to the digital currency website Coinhills. That’s an estimate made by looking at counting the volume of Bitcoins that have been exchanged for various currencies.
Of course, a buyer could be sitting in Singapore or Serbia while using South Korean won to trade, but the Coinhills breakdown is pretty much the best we have to go on.The Korea Blockchain Industry Association estimates that South Korea has more than a dozen cryptocurrency exchanges. And there’s so much demand that the virtual currency has traded at as much as a 30% premium compared with other countries.Taken together, you get a decent feel for how big this industry has become in a country of fewer than 50 million people. Amid tales of schoolchildren and housewives rushing in to buy virtual currency, South Korea’s government has branded the trend “irrational”.And so when trading exchanges are get raided by the tax authorities and your justice minister mentions potential bans on all cryptocurrency trading, it is perhaps little wonder that the industry globally is noticing and that markets are responding.The role of technologyMany South Koreans, especially among the younger generations, are digital-loving and tech-savvy, which makes digital currencies something appealing to explore and perhaps dabble in.
The country has first-class infrastructure for IT networks and offers very fast internet connections – all things which make trading cryptocurrencies easier and faster. According to analytics firm WiseApp, the number of cryptocurrency app users in South Korea has increase 14-fold in the past three months to about two million users. Most are in their 30s with users spending an average of 26 minutes on the apps daily. The role of the economyThe huge price rises enjoyed by many virtual currencies during 2017, and the associated media coverage, is a major reason so many worldwide have decided to invest in, or gamble with, this new technology. In South Korea it’s suggested this appeal has been amplified by the state of the economy which has been slowing in recent years.Rising unemployment, especially among young people, is also being linked with a growing number of people looking at new ways to try and make money.So unsurprisingly, with so many South Koreans keen to fulfil their financial hopes and dreams through cryptocurrency trades, there is resistance to plans for a crypto-clampdown.More than 200,000 people have now signed a petition on President Moon Jae-in’s official website asking that the “happy dreams” of Bitcoin traders in South Korea can remain in place. South Korea’s government has made a commitment to answer such petitions that reach more than 200,000 signatures within 30 days.Meaning this debate has a long way to run.