Bitcoin and other cryptocurrencies have been in the news of late as a result of the clampdown by the South Korean authorities.
The government in Seoul (capital of South Korea) made claims that cryptocurrency trading is overheated in the country. The price of cryptocurrencies in South Korea attracts a premium of 47 percent above the global average.
Effect of Cryptocurrencies on South Korean Economy
The global acclaim of Bitcoin hit an all-time high over the last twelve months and this led to the surge in prices of the variants of Bitcoin.
Exchanges have increased in South Korea with a fatal outcome last December, when one of the exchanges closed shop. In like manner, a review of four other exchanges showed a security loophole and poor data protection.
As more local funds chased the limited cryptocurrencies in circulation, it is also evident that a huge quantum of liquidity got tied up in the wonder coins.
This means that there is less fund supply to support productive businesses in the country. Lenders also seemed to profit from the splash with the end result of crowding out lenders on the low-end of the ladder.
The supply of liquidity is vital in market economies as the end result of any pressure on supply could lead to inflation, scarcity of liquid funds, and rent-seeking or profiteering.
Bitcoin and Altcoins take the Fall
As the news of the poor security of exchanges in South Korea came to limelight, the price of several cyptocurrencies took a free fall.
Bitcoin plunged from its height of $19,000 in Mid –December to an all-time low of 13,088 on 12 January 2018. Ethereum was also affected as it plunged to $669.28 on December 22, 2017.
Other altcoins also had plunges in prices of between 20 percent to 40 percent during the last 30 days.
South Korean Exchanges Disrupted Prices
The effect of the volatility of the South Korean cryptocurrencies market has being such that has led to price disruptions. CoinMarketCap, one of the biggest exchanges, decided to remove Bithumb, Coinone and Korbit’s data from its weighted averages.
This meant that the price of cryptocurrencies across exchanges witnessed a reduction with that singular action on 8th January 2018.
The effect was noticeable because Bithumb commands the second largest cryptocurrency trading volume worldwide.
As a result of the profiteering going on in South Korea, large-scale hoarding of cryptos was becoming the order of the day.
The size of the market is limited by the country’s foreign arbitrage limitations that make it difficult to sell locally held cryptos overseas.
This in effect means that the country’s exchange was more or less becoming a hoarding ground since the rate of buying was not commensurate with the selling pace.
As the South Korean authorities have dispelled the notion that there was a looming ban on cryptocurrencies, the pall of doom has given way to bated optimism.
The regulatory authorities are looking at how to stamp out insider abuse so that every account held can be traced by a proper ID. This line of action might become what other nations might insist on in the coming days to stem tax evasion, money laundering, and racketeering.
In other words, when funds are moved from traditional banking accounts, there must be a declaration as to the destination, and exchanges will be required to provide data on who owns what.
Why in the interim all of these actions might cast a shadow on price movements, you can be sure that the fall won’t last for long.
As soon as the doubts clear, it might become possible to transfer the huge holdings of cryptos in South Korea to other buyers outside the country.
As far as the demand for Bitcoin and other cryptos is not limited to any geographical sphere or nation, the market bounce will return any time soon.