Since November, both bitcoin and the overall cryptocurrency market cap have tripled in valuation. At any given time, a majority of trading volume has been seen to be driven by the Korean market featuring pairs involving the Korean won(KRW).
The numbers are staggering. South Korea's share of bitcoin transactions is 20 times that of its share of the world economy. Over one million South Koreans are estimated to own bitcoins and with such disproportionate demand, bitcoin and other cryptocurrencies trade on the Korean market at a premium of up to 25%. The speculative bubble surrounding bitcoin and cryptocurrencies has naturally created intensifying economic concerns for the government.
Current Status In South Korea
Bitcoin future contracts are outright banned in the country. In September, South Korea's Financial Services Commission ordered a ban on ICOs, deeming that “cryptocurrencies are neither money nor currency nor financial products.”
Last week, The Prime Minister's Office said Seoul would ban financial institutions from dealing in virtual currencies – including buying, possessing, or holding them as collateral.
Various governments have curtailed the use of cryptocurrencies by imposing draconian taxes on their possession and use, including VAT/GST and CGT. On Wednesday, following an emergency meeting in Seoul, South Korea’s government said it will consider taxing capital gains from trading of virtual coins and will also ban minors from opening accounts on exchanges.
The South Korean government will also force exchanges to “uphold investor protection rules and disclose all bid and offer quotes.” The government is expected to formally announce these moves on Friday.
A finance minister said on Monday that ministries are in talks to decide whether such trading should be regulated, while the chief of the financial regulator said some officials are calling for an outright ban on cryptocurrency trading.
Governments and financial regulators from around the world are worried that the longer the “speculative mania” surrounding cryptocurrencies lingers, the more pervasive its damage to the global economy.
The possibility of major repercussions when the bubble bursts and wildly unpredictable swings in excess of 30% in a single day have incited a sense of exigency for governments to consider regulating and policing the space.
Expert investors are now criticizing bitcoin as having critical flaws, including power-inefficiency, cumbersome transactions, volatility and the amount of speculation around it, especially in recent months.
Short-seller Jim Chanos, known for his prophetic foresight regarding the fall of Enron, labels bitcoin “a fad, nothing but a speculative mania.”
Why Is Bitcoin In A Bubble?
What's important to remember about Bitcoin is that it is a novel, unsampled concept of money and it is meant to be used as a decentralized medium of exchange between parties.
Measuring a decentralized medium of exchange in terms of centralized bank-backed currencies is detrimental to both the conventional and the proposed new decentralized economy.
Bitcoin is not issued or backed by any central bank. Bitcoin is created and exchanged independent of any authority. How can anybody put a price on decentralized currencies/assets in terms of centralized currencies without the authorization of centralized entities who issue them?
The recent intensification of speculation in cryptocurrencies arises out of, inter alia, new ill-informed entrants into the cryptocurrency space whose only interest is fiat profiteering.
Hedge fund manager, Seth Klarman, offers a pithy apologue on such speculation in his acclaimed value-investing book, “Margin of Safety.”
“There is the old story about the market craze in sardine trading when the sardines disappeared from their traditional waters in Monterey, California. The commodity traders bid them up and the price of a can of sardines soared. One day a buyer decided to treat himself to an expensive meal and actually opened a can and started eating. He immediately became ill and told the seller the sardines were no good. The seller said, ‘You don't understand. These are not eating sardines, they are trading sardines.
Like sardine traders, many financial-market participants are attracted to speculation, never bothering to taste the sardines they are trading. … trading in and of itself can be exciting and, as long as the market is rising, lucrative. But essentially it is speculating, not investing. You may find a buyer at a higher price — a greater fool — or you may not, in which case you yourself are the greater fool.”
The term Margin of safety refers to the difference between intrinsic value of a stock and its market price. Cryptocurrencies, as decentralized assets, have no intrinsic value represented in terms of centralized currencies.