Runaway trends in the price of cryptocurrencies have brought them under the regulators’ scanner in several countries, clouding the outlook for what was touted as the next big thing after Internet. South Korea and China, which are among the most active markets for cryptocurrencies, are leading the list of countries that are initiating crackdown measures.
Latest on the regulation front was an announcement by South Korea on Thursday that the justice ministry is planning a legislation to curb the excessive speculation in the cryptocurrency market. The measures include a ban on all cryptocurrency exchanges in the country, thus effectively preventing trading in digital currencies.
“We have great concerns about virtual currency,” Justice Minister Park Sang-ki said at a press conference. The ministry was preparing legislation that bans any transactions based on virtual currencies via exchanges, he added.
The price of Bitcoin plunged as much as 14 percent to below $13,000 following the news. As of 8.06 am ET, Bitcoin was down 0.49 percent at $13.877.64 on coinbase.
The total market cap of cryptocurrencies fell to $628.38 billion early Thursday, which was roughly $100 billion less than the level at the same time on Wednesday. Market cap recovered to $683.44 billion as of 8.13 am ET.
There were also reports this week suggesting that Chinese authorities have stepped up their clampdown on cryptocurrencies. A multi-agency task force, apparently including the People’s Bank of China, has asked provincial governments to “guide” companies in their regions to shutdown cryptocurrency mining activities, reports said citing various sources.
Mining is the process using which new bitcoins are created by a competitive and decentralized process by individuals or groups of individuals using freely available special software to solve mathematical problems to verify and confirm each bitcoin transaction in a block.
Verified blocks are entered into the “blockchain” for others to accept. The first miner to solve the mathematical puzzle will receive new bitcoins as reward. But, Bitcoin mining is an expensive process requiring high processor speeds, time, and intensive use of electricity.
China mines more than three quarters of world’s bitcoins as the country provides cheap electricity in several regions, and has a cooler climate that favors cryptocurrency mining.
In September last year, China had ordered a closure of bitcoin exchanges and banned initial coin offerings, or ICOs, a…