South Korea has become the surprise battle ground for the future of Bitcoin, after authorities announced plans to crackdown 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” and spark a wave of protests across the country, says the BBC.
Bitcoin briefly fell more than 17% to a six-week low after South Korea Finance Minister Kim Dong-yeon said that shutting down digital currency exchanges was still an option for the government.
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While its has recovered slightly, this has pushed Bitcoin below $10,000, half what it was worth at its peak.
The cryptocurrency market is notoriously volatile but events in South Korea appear to have a disproportionate effect on trading.
Digital currency website Coinhills says South Korea is the third-biggest market for Bitcoin trades in the world, behind Japan and the US, and with over a dozen cryptocurrency exchanges.
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, around 5% of the total population
However, unlike other countries, it is not just the tech-savvy who have jumped on the Bitcoin band-wagon, but ordinary workers, housewives and even children, many of whom would never trade traditional stocks.
The high demand from South Koreans has created what investors call a “kimchi premium,” the extra price the South Koreans have to pay to buy digital currencies, sold in South Korea at higher than the average global prices.
This has prompted fears a burst in the Bitcoin bubble could have wide-ranging and potentially devastating effects and stirred the authorities into action.
While it is unclear what, if any, measures the government will take, traders are fearful that where they lead others will follow, ushering a wave of new legislation regulating the virtual currency market and making it easier for trading exchanges to be raided by tax authorities.
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