Cryptocurrencies continue to take a beating in China and South Korea – two major markets – as preventative legislation is ramped up to combat what they see as tax evasion and excessive speculation.
China has today announced the banning of centralised trading of Bitcoin and other cryptocurrencies amid an ongoing crackdown, targeting websites and apps that offer trading services. This follows earlier steps such as the banning of ICOs – a form of fundraising whereby new cryptocurrency startups sell their coins – and plans to implement power usage restrictions to mining operations. Since it is now illegal for Chinese residents to engage in any centralized cryptocurrency trading, the only option they have are private over-the-counter exchanges.
Meanwhile in South Korea, cryptocurrency traders and investors may face fines if they do not attach their identity to currently anonymous virtual trading accounts, according to a Yonhap news report. This deals a low blow for enthusiasts, many of whom see anonymous finances as a cornerstone of the cryptocurrency ideology. Other preventative measures include:
- The government plans to enact a capital gains tax on cryptocurrencies;
- Trading can only take place on qualified exchanges;
- Today’s announcement: the South Korean government will soon make a decision on whether or not to place a full ban on anonymous crypto exchanges altogether amid ‘overheating in cryptocurrency speculation’, and the need for ‘a degree of regulation’, South Korean Finance Minister Kim Don-yeon told reporters.
So why are these two countries so determined to tackle cryptocurrencies compared to the countries in the West, where residents and institutions have pretty much free reign to use and trade as much as they like?
China is set on ensuring as much money stays within the country as possible. Digital currencies not only provide a channel for money to exit China, but one that is almost completely anonymous and very hard for an external observer to keep track of. Couple this financial control with harsh digital regulation (including, but not limited to, their extreme internet censorship), and it’s not entirely surprising. Ironically, China is not inherently anti-cryptocurrency, having developed coins of their own in the past. Similar to South Korea, they just want to control it.
South Korea’s tightening control is more startling. Crypto trading there is arguably more frenzied than anywhere else in the world. The extent of this is such that prices here often are higher than elsewhere. Though the measures are certainly less rigorous than in China, investors will be feeling the heat as the government mulls over even tighter restrictions.
So what does all this mean for crypto values worldwide? Certainly, knee-jerk reactions to the news caused a slump last week as Bitcoin fell 14% in response to South Korean regulations on January 11th. But the real effect may be more apparent in the long-term, as mining crackdowns begin to squeeze the supply of Bitcoin and cryptocurrencies in general. It’s worth considering the deflation effect that this may have.
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