Government fears ‘what could come next’ in bitcoin

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Government fears ‘what could come next’ in bitcoin

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A passerby watches cryptocurrency trading at Bithumb, the country’s largest cryptocurrency exchange, in central Seoul on Tuesday. [YONHAP]

Mr. Shim, a 28-year-old office worker, was glued to his laptop during a school lecture six months ago, checking every minute - sometimes every second - for fluctuations in bitcoin prices.

He wasn’t alone.

“I could see a dozen others in the classroom doing the same thing,” recalled Shim, who graduated college this year and now works at a state-run financial institution in Seoul.

Shim still maintains his bitcoin investment, now worth around 3 million won ($2,820). He and his friends are among the high number of Koreans in their 20s who have invested in the cryptocurrency market. The frenzy has made Korea the third-largest cryptocurrency market after the United States and Japan.

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“I bought bitcoin because I wanted to make money fast,” Shim said. It is a sentiment widely shared by those in his age group who want a shortcut up the economic ladder. “A lot of people around me say they want to shorten the time it takes to amass enough of a fortune - with the help of bitcoin - to buy a house, which typically takes at least 10 years even if one saves all the money he or she makes without spending a dime on it.”

Jang Jin-hee is on the same page. The owner of a beef restaurant in Cheongju, North Chungcheong, Jang has strong faith that the cryptocurrency market’s rally will continue. The 33-year-old put down 1 million won on bitcoin early last year and saw the value triple in November. “It felt surreal to make more than 3 million won with just a couple of clicks,” he said.

Save for a few disruptions, bitcoin’s value has continued to surge in the past few months, leading Jang to believe that the good times won’t be over anytime soon. His bitcoin stock is now worth 6 million won.

Sensing the high fever for cryptocurrencies, the Korean government has been rolling out a series of measures to control the heat, requiring investors to open cryptocurrency accounts using real names - previously, investors were able to open anonymous accounts - and pressuring banks to watch for illegal activity like money laundering.

The government has not been shy about expressing its unease with the nascent commodity. Last Thursday, Justice Minister Park Sang-ki went as far as calling cryptocurrency investment “gambling” and “speculation.” He raised the possibility of shutting down the country’s exchanges, sending prices of major cryptocurrencies tumbling. Bitcoin’s value in Korea dropped to 17.5 million won from the previous day’s high of 23.69 million won following Park’s comment, according to Bithumb, Korea’s largest cryptocurrency exchange.

But despite repeated threats of a potential ban, bitcoin has yet to crash as many investment gurus like Warren Buffet have predicted. Its value in Korea has hovered around 20 million won, and at one point on Monday, it was at 19.85 million won. Still, prices remain volatile to political confusion surrounding cryptocurrencies. After Finance Minister Kim Dong-yeon said in a radio interview Tuesday morning that shutting down exchanges was still on the table, bitcoin’s value fell below 16 million won at 7 p.m.

The government is particularly wary of a bubble burst resulting in huge losses for investors. Prime Minister Lee Nak-yon said in a meeting with reporters Sunday that regulators were “fearful of what could come next” as a result of irrational exuberance in the cryptocurrency market. The government’s main focus, he said, is to prepare a “soft landing” should bitcoin prices crash to minimize damage to investors.

Cryptocurrency investors are having none of it, perceiving the government’s tough words and dire warnings as regulatory overreach. One investor posted a petition on the website of the Blue House, the home of the president, on Dec. 28 calling for cryptocurrency deregulation with the maudlin line, “Has the government ever allowed its people to have dreams?”

The petitioner decried the government’s label of cryptocurrency investors as “speculators” and said the investment gave him a chance at owning a home, citing sky-high apartment prices in Seoul, where 1 square foot can easily go for 560,000 won.

As of Tuesday, the petition had over 202,000 signatures, more than the 200,000 needed for the Blue House to officially address the issue and make a formal response.

Many analysts who spoke with the Korea JoongAng Daily agreed that there is a strong degree of speculation in the cryptocurrency market that warrants government regulation.

“For cryptocurrencies to have value as the name suggests and be exchanged as currency, their prices should remain stable, which is totally the opposite of what bitcoin has been,” said Paul Lee, director of a local asset management firm who formerly worked at the Korea Investment Corporation and asked not to reveal his current employer’s name. “It is pure speculation coupled with fear of missing out that is fueling the bitcoin market now, not people’s interest in investing in the blockchain technology that underpins cryptocurrencies.”

Blockchain refers to automated digital ledgers that track cryptocurrency transactions. The ledgers are distributed across different computers and servers, making them impervious to manipulation. Various industries, including logistics and banking, believe the technology could have a global impact on the way companies do business.

“Government regulations do not restrain innovation,” Lee said, “but rein in people’s greed.”

Jake Lim, founder and director of Overnodes, a cryptocurrency research and consulting group, agreed that much of the hype surrounding bitcoin stems from irrational exuberance.

“At the core of the ongoing frenzy is greed,” he said. “People want to score big from the market without really understanding the fundamentals of the technology.”


BY KANG JIN-KYU [kang.jinkyu@joongang.co.kr]

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