[Editorial] Muddled response to cryptocurrency markets undermines trust in government

Posted on : 2018-01-14 14:30 KST Modified on : 2018-01-14 14:30 KST
Numbers are constantly changing on a ticker board installed on a cryptocurrency exchange in the Jongno District of Seoul on Jan. 12. The value of various cryptocurrencies plunged after the Justice Department announced it was preparing a special bill to abolish the virtual currency exchange
Numbers are constantly changing on a ticker board installed on a cryptocurrency exchange in the Jongno District of Seoul on Jan. 12. The value of various cryptocurrencies plunged after the Justice Department announced it was preparing a special bill to abolish the virtual currency exchange

The South Korean government has shown some confusion in the measures it’s taking to reduce speculation in Bitcoin and other cryptocurrencies. On Jan. 11, Justice Minister Park Sang-ki said that the ministry was “drafting a special bill to ban cryptocurrency trading that would even aim to shut down cryptocurrency exchanges,” but just a few hours later, the Blue House walked back these remarks, claiming that the final decision had not been made. This kind of discord fans distrust in the government and makes policies less likely to be effective.

The Justice Minister made a big mistake when he described a matter that had not been cleared with the administration as if it were a done deal. Such missteps must not occur in the future. Clearly, concerns continue to grow about the possible consequences of speculative trading in cryptocurrencies. The government has refused to bring cryptocurrencies into the mainstream and is toughening its regulations, but an increasing number of people are buying cryptocurrencies.

The market capitalization of the 12 cryptocurrencies that are currently being traded on Bithump, a South Korean cryptocurrency exchange, is close to 500 trillion won (about US$ 500 billion). Considering that about 20% of transactions at Bitcoin exchanges around the world use the Korean won, no doubt a considerable amount of cryptocurrency is held by South Koreans.

Furthermore, the price of the major cryptocurrencies that are being traded in South Korea are more than 35% higher than the average prices at global exchanges. That shows how much this is being driven by speculation, and there is also considerable risk that South Korea will become a hotbed of illegal behavior, such as currency arbitrage exploiting the price differential with other countries. Huge fluctuations in the price are becoming more frequent. While the people who are trading these cryptocurrencies insist on their freedom to invest as they like, it is reasonable for the government to take the necessary steps to minimize the negative consequences.

The government has declared that it will not recognize cryptocurrencies as a method of payment or as a financial implement and forbidden finance companies from getting involved in such transactions. It has also ordered that cryptocurrency transactions be registered under people’s real names and banned the creation of new virtual accounts. Along with these measures, the government is considering tougher regulations, such as taxing trades or banning them altogether.

The Justice Ministry’s position is that cryptocurrencies are a form of gambling, and thus illegal, and that a crackdown is in order, while government ministries responsible for the economy are sounding a more cautious note in light of the development of the blockchain industry. If government measures are to earn trust and be effective, the government must first clearly state its position.

Banning cryptocurrency trading is the toughest possible regulation. The Justice Ministry thinks that bold measures should be taken before it is too late, regardless of the side effects, which is an understandable position. But a ban may not even be viable. That would require defining cryptocurrency trading as a crime such as fraud or gambling, which is a dubious proposition.

The problem is that it’s not clear who is committing the crime in search of profit. There are already millions of South Koreans trading cryptocurrencies, and they might regard a ban on trading as an infringement on their property rights. Aside from China, Russia and a few others, the countries of the world are not blocking cryptocurrency trading, and US regulators have even approved cryptocurrency futures, which also weakens the justification for imposing a ban.

A ban on cryptocurrency trading should be set aside as a last resort. For now, the government should instead consider using high taxes to discourage people from trading. Speculation in cryptocurrencies is a global phenomenon, and it’s not a problem that the South Korean government can resolve on its own. The government should steadily implement workable regulations while expanding international cooperation. It’s important to tackle this with perseverance, rather than haste.

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