Korean Crypto Crash – the beginning of a huge downfall or a buying opportunity?

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Police and tax agencies in South Korea raided exchanges of cryptocurrencies searching for evidence of potential tax evasion. Coinone and Bithumb are under investigation for quite some time, but these fresh raids are a ramping up of these efforts.

In addition, there are reports by SBS that authorities in the Asian nation are working on legislation that will shut down these digital coin exchanges. The most extreme measure could be declaring trading in cryptocurrencies is illegal, thus shutting down the exchanges. The country is home to the third-largest trading volume in bitcoin.

The presidential office in Seoul said that the banning of the cryptocurrency market has not been finalized, at least not yet/ However, they did call bitcoin trading a “serious pathological phenomenon” in the recent past. The Financial Services Commission of Korea has previously banned ICOs, trading in bitcoin futures, and anonymous crypto trading accounts.

Significant fall

The prices of most cryptocurrencies are falling. At the time of writing, here are the moves, prices in USD:

  • Bitcoin is down some 9% to 13,500
  • Ethereum is down around 3% to 1,217.
  • Ripple is down around 10% to 1.75 and there are more reasons for its downfall.
  • Bitcoin Cash is down 14% to 2,457.
  • Litecoin is down around 8% to 229.

The negative case

This is a negative development, at least in the short term, and it is easy to make the negative case.

South Korea is one of the biggest hubs for trading digital currencies. Closing the exchanges in such a critical market deals a blow to the prices of cryptocurrencies and to the development of the blockchain technology, which needs investment. Higher interest and higher prices attract more money also into research and making new real-world applications with this technology.

South Korea is a special market also in another sense: due to various capital controls, there have often been differences between prices of cryptocurrencies in Korea and elsewhere. This divergence cannot be tapped into: it is very hard to make arbitrage trades as moving money in and out of the nation is complicated.

The divergence and the near-impossible manner to arb has led CoinMarketCap to exclude a few Korean exchanges from its calculations recently.

So, we may have a significant part of the market see its exchanges being shut down and the money cannot easily go elsewhere.

Looking forward, South Korea may lead the way for other countries. China is already looking to curb bitcoin mining and others may follow. This could have an additional detrimental effect that may further depress cryptocurrencies and the blockchain technologies.

The positive case

The more optimistic case stems from the motivation of the authorities in Seoul to crack down on cryptocurrency exchanges and the exchange activity in general. Authorities are worried about households using leverage to invest digital coins, certainly a big risk.

Yet getting more regulation is also a sign of maturity. Having something that is regulated means it is taken seriously. In addition, given the big, bubbly jumps in some coins, corrections like these are necessary in order for the long-term rises to continue and not to crash.

And over a longer period of time, Koreans who are enthusiastic about trading and developing cryptocurrencies will find their ways of doing so outside their home country. The blockchain technology has a lot of potential and is braced in other countries.

Or perhaps it was all a FUD? According to some, the reports on the proposed laws are just deliberate misinformation created to spread fear, uncertainty, and doubt, allowing the big boys a buying opportunity. If this whale theory is correct, there is a buying opportunity and not only for whales.

What do you think?

The beginning of a big crash in cryptos or a big buying opportunity?

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About Author

Yohay Elam – Founder, Writer and Editor I have been into forex trading for over 5 years, and I share the experience that I have and the knowledge that I’ve accumulated. After taking a short course about forex. Like many forex traders, I’ve earned the significant share of my knowledge the hard way. Macroeconomics, the impact of news on the ever-moving currency markets and trading psychology have always fascinated me. Before founding Forex Crunch, I’ve worked as a programmer in various hi-tech companies. I have a B. Sc. in Computer Science from Ben Gurion University. Given this background, forex software has a relatively bigger share in the posts.