Here’s a quick reminder for those counting down the days to when bitcoin is nothing but a memory. The last time a major cryptocurrency market shut down exchanges, prices rallied threefold.
If the past is any indicator of the future, then this is a mere blip on the radar of where Bitcoin is heading.
On Sept. 19, China ordered bitcoin exchanges to close within a month. The government also banned initial coin offerings (ICOs), a funding mechanism for startups that is sort of like crowdfunding, but in China was also being used as a means to hoodwink investors. In the three months since China decided to close its exchanges, bitcoin prices have gone up 313%.
Many investors — from retail investors with a grand or two at work in bitcoin to hedge funds with a couple of million dollars at stake — have been waiting for regulations to come. Bitcoin accounts for over 30% of the total market cap of the roughly 1,200 cryptocurrencies out there. It is the most traded coin.
Investors need to be willing to lose the entirety of their principal investment when throwing money into digital currencies like bitcoin. China and South Korean governments think the locals are willing to lose a bit too much.
The news out of South Korea today had Business Insider headline writers talking about a “plunge” in prices.
Bloomberg first reported that South Korea would require cryptocurrency transactions to unmask account holders and would ban banks from offering digital money accounts. The government may also direct law-enforcement to force the closure of “some exchanges.”
“Cryptocurrency speculation has been irrationally overheated in Korea,” the South Korean government said in a statement reported by Bloomberg. “The government can’t leave the abnormal situation of speculation any longer.”
This is precisely what was said in China in September before the three-fold rally.
The cryptocurrency market is mainly driven by Asian investors — the same class of investor that treats their domestic stock market like a casino chip. This is especially true in China. What has become clear over the last year is that retail investors from Asia feel they have nothing to lose. An entire industry promoting cryptocurrencies has opened up there, with newsletter writers and pundits touting the next big crypto. Some of it is deemed fraudulent. But with some of these currencies worth only a few dollars, investors seem willing to gamble. Moreover, due to the stellar rise in bitcoin, retail investors have never felt the severe pain of losing their capital. The word on the street is that there is nothing but upside. That outlook continues to fuel speculation in bitcoin as a win-win. South Korea is unlikely to sour sentiment or stop the locals from owning bitcoin.
Bitcoin capital gains are tax-free, though American investors with over $10,000 transferred into cash will have to declare that as income. And anyone paid fully in bitcoin needs to file a W2 form with the IRS.
No matter what South Korea does, Bitcoin is attractive because of its stateless anonymity and its tax bennies.
More companies like PayPal are allowing for transactions in bitcoin. As is Expedia. As bitcoin becomes more mainstream, more demand will lead to higher prices just as more demand for U.S. Treasury bonds leads to higher prices for those bonds.
Bitcoin prices “need to break above the 50-day moving average to take control from the bears,” Naeem Aslam, chief market strategist for Think Markets in London, wrote in a note to clients today. The 50 day simple moving average for bitcoin stands at $14,806.42. Bitcoin is now priced at around $14,227. The bears are running the table today. South Korea just threw them a pot of honey.
“I am confident that (bitcoin) will be in the mainstream as an investment asset…much like gold,” says David Herne, a Russia-based hedge fund manager currently invested in cryptocurrencies.
Worth noting, despite the noise surrounding bitcoin and South Korea today, Ripple coin (XRP) prices rose 1.7%. Ripple is building a digital payments system between two South Korean banks and a consortium of 61 Japanese banks, suggesting that South Korea may be trying to curb an overheated bitcoin investing market rather than squash cryptocurrencies.