The Chicago Board Options Exchange began trading in bitcoin futures on Sunday. The cryptocurrency has come into the mainstream of US finance eight years after it was invented. But the South Korean government, concerned with wild price swings of digital currencies in local exchanges, is considering regulating them.
Financial Services Commission Chairman Choi Jong-ku told reporters Monday, “The government is examining how much to regulate virtual currency trading. A total ban is among the options on the table.” An interagency task force led by the Justice Ministry will discuss regulations over cryptocurrencies this week. The regulations expected to be discussed include banning local cryptocurrency exchanges in principle, introducing consumer protection measures and permitting only those exchanges which meet requirements for the prevention of money laundering. Financial observers expect the authorities will restrict investment amounts or investor eligibility.
Bitcoin in South Korea traded a bit above 1 million won ($910) until early this year, then soared amid frenzy investments by people of all ages, including office workers, housewives and even high school students. It peaked at 24.99 million won on Dec. 8 at Bithumb, one of the nation’s leading cryptocurrency exchanges. Critics accused them of going on a risky speculative spree and spreading a get-rich-quick mentality. Even a new word, “bitcoin zombie,” was coined to refer to those who check the cryptocurrency’s price day and night as it is traded round the clock and online. In August, police busted a fraud ring that swindled 155.2 billion won in cryptocurrency out of more than 35,000 people.
Prime Minister Lee Nak-yon said in a Cabinet meeting on Nov. 28, “Youths and students have rushed to invest in digital currencies. Drug dealers and swindlers are said to use the currencies. It’s about time the Justice Ministry and other related agencies began to examine this problem.” A week later, the interagency task force held a meeting, then the price of bitcoin nosedived more than 40 percent last weekend from its peak on the news of the authorities considering regulations.
Bitcoin and other cryptocurrencies are virtual commodities without any inherent asset value and are not guaranteed by central banks. The decision to regulate them has come late but was the right one. If the frenzy over bitcoin continues unabated for some time before the bubble bursts, many late investors will suffer enormous losses. Bitcoin can be abused by criminals including drug traffickers, as Prime Minister Lee pointed out.
Measures are needed to curb cryptocurrency speculation and scams. Yet the government does not need to look coldly upon bitcoin. Cryptocurrencies are traded using a “blockchain,” regarded as a core technology of the Fourth Industrial Revolution.
It is an innovative technology to record transactions in a digital ledger, called a block, efficiently and permanently. Once recorded, the data in a block cannot be altered or forged or deleted. The technology is expected to be applied to all financial transactions in the future.
The government must end cryptocurrency speculation but not nip the revolutionary technology in the bud. It needs to take note of the reasons why a US futures contract for bitcoin was launched. It reflects widespread acceptance of the virtual currency.
While trying to normalize overheated trading, financial regulators ought to examine the possibility of bitcoin being utilized as a tool of transactions in the era of the Fourth Industrial Revolution.
Strong measures if taken belatedly all at once can bust speculative bubbles, jolting the economy. It would be irresponsible of the government only to try to regulate cryptocurrencies, unlike the US and Japan which are trying to induce a soft landing.
Government regulations over cryptocurrency trading must be focused on minimizing its side effects and curbing the speculation frenzy. And discussions from various angles are needed as well to avoid missing out on a future technology.