The government of South Korea has banned its financial institutions from dealing in virtual currencies such as Bitcoin on Wednesday. The announcement has come amid soaring crypto currency prices fuelled by retail speculators in the country.
The statement from the Prime Minister's Office asserts that Seoul would ban financial institutions dealing in buying, trading, or holding virtual currencies as collateral. Initial coin offerings (ICOs), where companies sell newly invented crypto currencies to investors for real money will be outlawed. The government aims to strengthen investor protection rules by curbing speculation and potential fraud.
There was an instant impact of the announcement on the Bitcoin prices on South Korea's biggest Bitcoin exchange Bithumb, as the value of Bitcoin fell nearly five percent.
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About one million South Koreans are estimated to own Bitcoins, although most of them are small-time investors. The country has been the hub of for crypto currency trading, contributing nearly 20 percent of global Bitcoin transactions. Owing to less supply and more demand of the Bitcoins, the trading prices for the unit of Bitcoin in South Korean exchanges are 20 percent higher compared to the global market.
The value of Bitcoin has grown tremendously this year, registering an audacious 17-fold gain, shooting from less than $1,000 in January to $17,000 this week. According to coinmarketcap.com website, the crypto currency is currently trading at $16,464.80.
Bitcoin made its debut in the mainstream trading last week, on the Chicago Board Options Exchange, as the exchange started trading futures. The Chicago Mercantile Exchange is expected to start trading Bitcoin futures next week.
Earlier in September, South Korea's Financial Services Commission had announced a ban on ICOs, declaring "cryptocurrencies are neither money nor currency nor financial products".
Recently, South Korean Prime Minister, Lee Nak-Yeon, has also expressed worry over the rising interest of youth in crypto currencies like Bitcoin. He had called the trend a bad influence, saying it could lead the nation's youth to get involved in illegal practices. He had also urged the regulators and agencies to come together for monitoring the developments of the crypto currency market and take necessary measures to countrymen from its potential harms.