According to some major media outlets South Korea today confirmed that it would ban cryptocurrency trading. Some movement in the regulatory space was not unexpected with officials in the South Korean Central Bank indicating that this may happen a number of weeks ago.
The news has sent the price of all major cryptocurrencies down again today. This is a trend that has been ongoing now for a number of days, with Stellar in particular badly affected. It is down almost 50% since its recent high. Other major coins have also been dropping sharply. South Korea is a major centre of crypto trading, especially in the more obscure coins so this ban, if that is what its going to be, will have a major affect on prices.
It is difficult to know at present when the falls will stop as it is proving difficult for people to have their accounts verified at some exchanges in order to make withdrawals. This may only be the beginning of a slow downward trend if there is more bad news.
Why has this been done?
This potential ban was proposed as the authorities in South Korea are becoming increasingly uncomfortable with the amounts of money being speculated. One South Korean official noted that at least during the tech bubble there was an underlying company, in a lot of cases the support structures for a lot of coins are completely unknown.
A number of premises have also been raided by South Korean officials investigating tax evasion linked to cryptocurrency trading.
However there will be no immediate ban. It will take some time for the legislation supporting the ban to make it through the legal process in South Korea so this will not be immediate.
Adding to the confusion some media outlets are using more moderate language suggesting increased regulation rather than a ban. The main media outlets are however reporting an outright ban.
A petition has been started to protest against the ban but it is very unclear how much impact this will have. In all likelihood it will be very limited.
Is a ban a good thing?
This is not an easy question to answer. For those who are late to the game or those that have invested large sums of money in the market a ban is obviously unwelcome. Large amounts of money could be lost with consequent impacts on people across the globe.
In the long term however a ban may not be a bad thing. The truly innovative coins will survive. Those with an actual solid use case were created to be used and thus have value outside of their dollar cost.
In addition a ban leading to a withdrawal of some speculators from the market could help to stabilize prices and values. This will greatly help their use case as its difficult to use a payment mechanism which is extremely volatile.
However there is obviously the risk that the good coins will become tainted by any ban and despite their increased stability, they remain seen as inherently unsuitable for any material financial transactions.
What will happen next?
A period of volatility is now very likely, even more than normal as people seek clarification. It will be important to watch whether other places follow like Japan.
In addition it will be interesting to see how the exchanges based in Korea react. Will they relocate? Will they introduce tough new daily trading limits? Or increase the account opening requirements.
One thing is for sure though. The markets face a very interesting time ahead.