The news sent a shock wave to cryptocurrency market with prices of major cryptocurrencies including bitcoin, ripple and ethereum took a hit following the news that South Korea could be preparing to ban trading in digital currencies.
Justice Minister Park Sang-ki on Thursday announced at a New Year's press conference that the government is preparing a special bill on banning transactions of cryptocurrency through exchanges. There is a still a process to go through, which entails drafting a bill and getting a majority vote from the 297 members of the National Assembly. Last month, 2% of all South Korean citizens owned at least some cryptocurrency, buying with such frequency that Bitcoin often sells at a 40% higher price there than on US exchanges.
"We do not share the same views as the Ministry of Justice on a potential cryptocurrency exchange ban".
The Indian finance ministry recently cautioned investors about the risks of trading in cryptocurrencies such as bitcoin, saying digital currency investments are like "Ponzi schemes".
That sounds like bad news but Bitcoin is down only about 5% to $13,800.
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Once enforced, South Korea's ban "will make trading hard here, but not impossible", said Mun Chong-hyun, chief analyst at EST Security.
Cryptocurrency prices plunged in response to the news as South Korea, along with China, has become one of the centres of the cryptocurrency boom. Ripple trimmed its 21% tumble to a 14% drop, while ethereum slumped 5%.
The statement came after hundreds of apparent investors in virtual currency rushed to the website of Cheong Wa Dae, posting more than 1,000 petitions against a possible shutdown of cryptocurrency exchanges. "Some officials are pushing for stronger and stronger regulations because they only see more [investors] jumping in, not out", Mr Park said.
The cryptocurrency market in South Korea is estimated to account for 20-25 percent of the global trading market. "If we ban virtual currency exchanges altogether as the Financial Services Commission recommends, we are likely to end up in a situation where nobody takes the responsibility." said Jin-hwa via Khan.
There are more than a dozen cryptocurrency exchanges in South Korea, according to the Korea Blockchain Industry Association.
Meanwhile South Korean authorities are investigating six banks now offering virtual currency accounts that have possible links to money laundering.