South Korea's justice ministry is drawing up legislation aimed to curb overheating in the virtual currency market, including a complete shutdown of all cryptocurrency exchanges in the country, its minister said Thursday.
"The ministry is preparing legislation that basically bans any transactions based on a virtual currency through the trading floor," Justice Minister Park Sang-ki told a press briefing. "We have grave concerns about (the craze over) virtual currency and (a shutdown) would be one of the goals we are aiming for."
His remarks are in line with the government's stern resolve to tackle the irrational cryptocurrency market here that many observers now say has reached a critical level. Recently, a major bitcoin exchange was hacked and incurred heavy losses for many investors. Crimes involving cyber money, such as multi-level marketing fraud using virtual currencies, have also been on the rise.
"It has started to resemble gambling and speculation," Park said. "The fact that media have used the phrase 'Kimchi premium' reflects foreigners' assessment that the Korean market is abnormal."
Park dismissed views that strengthening the rules amounts to government market intervention, noting that the United States and Japan have maintained their own ways to limit transactions.
The government has held a series of ministerial-level meetings to discuss ways to calm the market and prevent negative impacts. The justice ministry suggested the most hard-line approach of an all-out legal ban on virtual currency transactions.
"Media have covered positive aspects, such as the blockchain technology and so forth, but it'd be misleading if we say the technology can only grow through cryptocurrency," he said. He also added that "virtual currency" may not be the right term and that he would rather call it "a virtual token."
The minister warned of social repercussions that might come from tremendous potential financial losses if the market begins to collapse.
"Virtual currency is not based on an exchange of something with a certain value," he said. "It'd be devastating if the bubble bursts and all the money that should've been invested vanishes as virtual currency."
Later, the presidential office Cheong Wa Dae noted that shutting down cryptocurrency exchanges altogether was one possible measure being considered by the government but added that no decision has yet been made.
"Justice Minister Park Sang-ki's remarks regarding the shutdown of cryptocurrency exchanges is one of the measures that have been prepared by the Justice Ministry, but it is not a finalized decision and will be finalized through discussion and a coordination process with each government ministry," Yoon Young-chan, chief press secretary to President Moon Jae-in, said in a statement.
The statement came after hundreds of apparent investors in virtual currency rushed to the website of Cheong Wa Dae, posting more than 1,000 petitions against a possible shutdown of cryptocurrency exchanges.
Following the presidential office's message, the Justice Ministry softened its stance on the issue.
"The ministry has been preparing a special law to shut down all cryptocurrency exchanges, but we will push for it after careful consideration with related government agencies," it said in a text message sent to reporters.
South Korea's cryptocurrency market is estimated to account for 20-25 percent of the global market in terms of transactions. There are currently about 20 virtual currency exchanges in the country, with the monthly turnover of the top bourse at 56 trillion won (US$52.2 billion) as of December.
Cryptocurrency-related stocks and the virtual coin market suffered more heavy losses shortly after the government announced the plan to potentially ban trading of virtual coins.
The local price of bitcoin plummeted 20.7 percent to 17.79 million won at one point during afternoon trading, according to local cryptocurrency exchange Bithumb.
But after the more cautious statements from Cheong Wa Dae and the Justice Ministry in late afternoon, the bitcoin price returned to the 20 million won level.
Local prices for cryptocurrencies are typically about 30 percent higher than those in international markets, with financial authorities warning that a rush of speculative investment into virtual currency is fuelling a surge in prices.
On the junior KOSDAQ stock market, cryptocurrency-related stocks also went into turmoil.
Omnitel Co., which has a stake in Bithumb, had plunged by its daily limit of 30 percent at one point in afternoon trading.
Six other cryptocurrency-related stocks, including VirtualTek Corp. and Vidente Co., saw their stock prices plunge as well.
In its latest measure to help prevent speculative investment in virtual coins, the government has banned banks from offering virtual accounts, which are needed to sell or buy cryptocurrencies, to individual customers.
Choi Jong-ku, chairman of the Financial Services Commission, told lawmakers that the government is considering forcing banks to stop offering virtual accounts for cryptocurrencies if any irregularities are found.
Choi said the government's clampdown on cryptocurrencies is aimed at "minimizing side effects" in trading virtual coins. (Yonhap)