History will teach us, I believe, that South Korea is about to get it wrong on cryptocurrencies. The usually forward-thinking, technologically-advanced country is, it has been reported, set to ban local cryptocurrency exchanges. The restrictions are set to take effect later this month.
The justice ministry’s move shocked the global financial sector because South Korea is the third-largest market for trading cryptocurrencies after Japan and the US. But the popularity itself might be the issue. Hong Nam-ki, minister of the office for government policy coordination, has described his country’s interest in cryptocurrencies as “abnormal.” And the prime minister, Lee Nak-yeon, has said such currencies could lead to a “social pathological phenomena.”
It would appear that one of Seoul’s major concerns is that Bitcoin, the world’s largest cryptocurrency, has seen a 900% price increase within 12 months but is vulnerable to extreme volatility. In December, it almost doubled in value before falling 30% before another impressive rally.
In many respects, I share the South Korean government’s concern. Indeed, when the huge price increase occurred I was quoted as saying: “Bitcoin remains a major gamble as it is very much an ‘uncharted waters’ asset. We’ve simply not experienced this before. Also, an asset that goes almost vertically up should typically raise alarm bells for investors. In addition, many would argue that there’s limited underlying economic value.”
South Korea warns of fraud and misuse
Like many other governments, South Korea is also flagging potential fraud and misuse. Supporters of the ban point to a Ponzi scheme called MiningMax and the Bitcoin exchange BitKRX, which were exposed by South Korean police as fraudulent.
While there are legitimate concerns about possible misuse of cryptocurrencies, these are bonafide issues with all new technologies. But this doesn’t mean we don’t pursue them and allow society to stand still. It simply means that more regulation and enforcement are required.
To my mind, it is a huge shame that South Korea, which is typically at the cutting edge of innovation, is turning its back on cryptocurrencies when it could be — and perhaps should be — leading the way in this sector.
The financial technology age dawned in 2017 and nothing has gripped people’s imagination in this new era quite like cryptocurrencies. South Korea has the resources and skills to forge the way in this industry. It is, in fact, arguably uniquely placed to do so.
Digital currencies an unstoppable tide?
Not only do I believe it is an enormous misstep economically for South Korea to introduce this ban, it is also my opinion that it is going against an unstoppable tide.
There is a huge and growing appetite for currencies that are not controlled by central banks and governments. Supporters believe that these digital currencies are an antidote to what they see as the ills caused by the traditional banking system.
In addition, whether some populist politicians, such as US President Donald Trump, like it or not, globalization is here to stay. When harnessed properly, this is an immensely positive force for trade and commerce across the world, including South Korea.
In a digital age, the world needs digital currencies. One or two of the existing ones will succeed, whether it’s Bitcoin or not remains to be seen.
But demand for cryptos is strong and this is just the beginning. If Seoul pushes ahead with its ban on crypto trading, other countries will forge ahead meaning South Korea could be left behind and might be unable to catch up.