[Bitcoin Now] Sharp Drop to 68 Million Won Level Due to Government Intervention

Interpretation of the Process of Bubble Dissipation

On the morning of the 20th, when the prices of cryptocurrencies such as Bitcoin plummeted, an employee is checking cryptocurrency prices at the Bithumb Gangnam Customer Center in Gangnam-gu, Seoul.
[Image source=Yonhap News]

[Asia Economy Reporter Gong Byung-sun] As the government cracks down on illegal activities using virtual currencies (cryptocurrencies), the representative cryptocurrency Bitcoin plunged to the 68 million won range. This is interpreted as a process of the market maturing as the bubble bursts.

According to the domestic virtual currency exchange Upbit, as of 2:41 PM on the 20th, Bitcoin recorded 68.66 million won, down 3.87% from the previous day. It surpassed 80 million won on the 13th but then fell for seven consecutive days, dropping to 66 million won. It is the first time since the 7th that it recorded the 60 million won range.

The "Kimchi Premium," which indicates the price difference of Bitcoin between domestic and overseas markets, also decreased. As of 10:48 AM that day, Bitcoin was traded at about 60.89 million won on the overseas cryptocurrency exchange Binance, recording a Kimchi Premium of 11.33%. The previous day, the Kimchi Premium exceeded 20%, causing a price difference of about 13 million won, but it decreased to 7 million won that day. Generally, the Kimchi Premium is considered a precursor to a crash. If Bitcoin prices crash in the domestic market due to the Kimchi Premium, buying demand shrinks, negatively affecting the global cryptocurrency market.

This appears to be due to the government's move to regulate virtual currencies. On the 16th, the government announced at the virtual currency-related ministries' vice-ministerial meeting that a special crackdown at the pan-government level would be conducted by June. This is in response to concerns that illegal activities such as money laundering are becoming frequent as the virtual currency market overheats. The Financial Services Commission plans to strengthen the first monitoring of virtual currency withdrawals and promptly notify investigative agencies and tax authorities of suspicious illegal transaction analysis results from the Financial Intelligence Unit. The Ministry of Economy and Finance plans to strengthen the system to check violations of related laws such as the Foreign Exchange Transactions Act together with the Financial Supervisory Service. The police will subdivide dedicated departments by illegal activity type and enhance expertise by distributing virtual currency tracking programs.

There is an interpretation that this adjustment is a process of the virtual currency market maturing as the bubble bursts. On the 19th (local time), the US economic media Bloomberg argued that the decline following the listing of Coinbase, the largest US virtual currency exchange, on Nasdaq is not a side effect of overheating but a market maturation process. It explained that a 20% drop in the cryptocurrency market is common and that the decline is not significant when viewed over five years.

There are also claims that the market has already matured. On the 19th, Lior Simons, Vice President of Digital Asset Strategy at the US investment firm Fundstrat, explained in an interview with the US economic media CNBC, “Last year, Bitcoin fell about 50% in one day due to negative news, but now it has only fallen about 15% from the peak over several days,” adding, “This is evidence that the market has matured over the past year.” On March 12 last year, when the economic situation worsened due to COVID-19, Bitcoin fell 33.09% in a single day.