Flash Crash as South Korea Investigates Banks Holding Bitcoin
South Korean regulators are launching an investigation into six banks to determine if they are adhering to anti-laundering regulations. These banks allow clients to hold digital currencies in their accounts. According to Reuters, NH Bank, Industrial Bank of Korea (024110.KS), Shinhan Bank [SHINBC.UL], Kookmin Bank [KOOKM.UL], Woori Bank (000030.KS) and Korea Development Bank [KDB.UL] are all under scrutiny by the Financial Services Commission (FSC) and Financial Supervisory Service (FSS).
“The side effects have been severe, leading to hacking problems at the institutions that handle cryptocurrency and an unreasonable spike in speculation,” reports Reuters. According to Choi, the ramifications could include “shutting down institutions that use such currencies” to reduce the risk of criminal activity and digital currency hacks.
Last month Bitcoin dropped on news that South Korea could close exchanges. The government has also vowed to draft new regulations that would limit speculation in the markets. According to Business Insider, in December the South Korea government released a statement that “Cryptocurrency speculation has been irrationally overheated in Korea. The government can’t let this abnormal situation of speculation go on any longer.” Starting in January anonymous cryptocurrency accounts are deemed illegal.
South Korea is the world’s third largest market for cryptocurrencies after the US and Japan.
Bitcoin has plummeted to a 24-hour low near $14,000 in the US, down from its 24-hour high of $16,380. Prior to the announcement in South Korea, Bitcoin was trading at a premium of over $23,000.
Bithumb, the leading Korean exchange, has helped to inflate cryptocurrency prices because of high valuations in South Korea that include other top cryptos such as Ripple and Qtum. In a move to curb the inflationary valuations, CoinMarketCap has excluded the price of South Korean exchanges Bithumb, Korbit, Coinone and others. The move has shed $50 billion in market cap.