Bubble Trouble: South Korea Considers Ban on All Cryptocurrency Exchanges

Bitcoin price plummets as South Korea says cryptocurrency ban is a 'live option'

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.

Bitcoin, which rose to more than $19,000 in December, recovered by 18% on Thursday after suffering heavy losses in the preceding two days.

While miners are now paid 12.5 BTC as a reward for mining a single block, the bitcoin protocol dictates that the figure is halved every 210,000 blocks. This is estimated to be somewhere in the region of 4 gigawatts, the equivalent of the production of three nuclear reactors.

Nevertheless, China has yet to block the one-on-one trading of bitcoins.

In the UK Nicky Morgan, chairman of the Treasury Select Committee, has told MPs she will seek expert advice about a potential Parliamentary probe into Bitcoin.

Cryptocurrency exchanges allow customers to trade digital currencies for other assets or different digital currencies. If you are trading these currencies directly, and something goes wrong, there is no recourse to the FCA. Both CME and the CBOE have introduced bitcoin futures, with the latter's first contract due to expire today, so expect further volatility, albeit we know that already.

All this negative sentiment was doing no favours for the prices of cryptocurrencies this week.

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Bitcoin plunged to below $10,000 on Wednesday on the Luxembourg-based exchange Bitstamp after the South Korean news.

On Wednesday morning Bitcoin fell and reached $9,199.59. As everyone will know, the cryptocurrency surged this year by around 2000%, from $1,000 up to $20,000.

The Armchair Trader says:We have always anticipated that Bitcoin would run into trouble at some stage.

That said, there are other indications this slump is also a result of separate, more transient factors. This has added to volatility and, in Bitcoin's case, curbed sustained rallies seen a year ago.

It is notoriously hard to be certain of what causes moves in Bitcoin's value - the asset has been much more volatile than most traditional currencies and commodities to date - but speculation that regulators may be about to restrict trade has been causing concern.

"It's impossible to ban bitcoin and cryptocurrency trading because the more you regulate, the more it will become popular", said Francesco Nazari Fusetti, co-founder and chief executive officer of Aidcoin and CharityStars, which aims to launch an online auction platform for the non-profit sector.

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