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Bitcoin tumbles again after South Korea’s new regulations

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Bitcoin tumbled again on Thursday after South Korea announced more measures to regulate trading, including a potential shutdown of exchanges, amid fevered demand for the asset in the world’s third-largest cryptocurrency market.

The price of bitcoin on Thursday afternoon in Seoul fell about 8.5 per cent to Won19.93 million ($18.534) on Bithumb, one of the world’s busiest virtual currency exchanges, as traders reacted to the measures. Bitcoin, the world’s biggest and best-known cryptocurrency, has fallen about 28 per cent from its record high reached last week.

“Cryptocurrency speculation has been irrationally overheated in Korea,” the government said in a statement. “We cannot leave the abnormal situation of speculation any longer.”

The measures include a ban on opening anonymous cryptocurrency accounts to boost transparency and legislation to allow regulators to close digital currency exchanges if needed, a recommendation made by the justice ministry worried about scams involving cryptocurrency trading.

“The regulator is saying to exchanges to have proper cyber security and proper know-your-client processes in place,” said Cedric Jeanson, chief executive of BitSpread, a cryptocurrency market maker. “With the market overheating in Korea, it is quite natural that the regulator thinks, ‘let’s make sure this is done properly’.”

The government noted that most virtual currencies were trading at a premium on South Korean exchanges, despite a string of regulatory measures announced by the government this month designed to cool demand.

South Korean traders are paying about 30 per cent over international rates for bitcoin, reflecting the popularity of the asset in the country and the difficulty in arbitraging among markets.

Koreans prefer to use bitcoin exchanges in their home country rather than the US because they need to open a bank account in the US to buy the currency in that market – a cumbersome requirement.

The price of bitcoin has surged more than 19-fold this year after starting 2017 at about $1,000.

Earlier this month, South Korea said it was considering taxing capital gains from cryptocurrency trading to cool demand for digital currencies among the country’s technology-enthralled population.

Seoul has reaffirmed its determination to crack down on crimes involving virtual currencies and strengthen punishment for such crimes. The country accounts for about a fifth of bitcoin global trading by some measures, and generates the highest trading volumes after the US and Japan.

South Korea in September banned initial coin offerings, a popular mechanism for companies to raise cash through the issue of digital tokens. The country’s financial watchdog has also banned the trade of bitcoin futures. -Copyright The Financial Times Limited 2017

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