Cryptocurrency crash as bitcoin and other prices tumble
Cryptocurrencies have been heavily sold off, amid fresh fears of a major regulatory crackdown in South Korea.
- Bitcoin prices plunged more than 20pc at some points in the past day
- Other major cryptocurrencies had falls of more than 40 per cent
- Falls are due to concerns that South Korea will ban cryptocurrency trading
Bitcoin has seen its price drop by more than 20 per cent, to well under $US11,000, after the South Korean Finance Minister said in a radio interview that a ban on trading cryptocurrencies was a live option.
It follows a sell-off last week when the idea of a law to ban trading was first raised by the Minister.
It is the biggest sell-off in bitcoin in at least three years, which peaked at nearly $US20,000 back in December, but it did not suffer as badly as many of its cryptocurrency rivals.
Number two by market capitalisation, Ethereum, dropped by more than 25 per cent while Ripple, the number three, dropped by more than 40 per cent.
In total, there are now more than 1,400 cryptocurrencies being traded in an increasingly crowded space.
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The potential impact of a ban in South Korea is expected to be large.
It is one of the biggest markets for trading cryptocurrencies, with college students and housewives all getting in on the action, stoking fears that it has become a type of gambling addiction.
It also follows moves in China to clamp down on trading in digital currencies.
‘Everyone rushing for the exits’ … or nearly everyone
IG’s head of research Chris Weston said the 2017 surge in bitcoin and other cryptocurrencies was mostly driven by FOMO (fear of missing out).
“They were watching other people getting really, really rich and they wanted a piece of it too and I think that’s ultimately where we are at the moment,” he said.
“You’ve even seen talk out there of people in certain parts of Asia actually remortgaging their house to get extra funds to buy more bitcoins.”
However, Mr Weston said the rush to get in is being mirror by a panic to get out as the price of the cryptocurrencies tanks.
“If you’re going to dance at the disco, if there’s a fire you want to be closest to the exit point,” he said.
“[That] is obviously running very, very true with bitcoin.
“We’ve seen everyone rushing for the exit points at one time.”Not everyone is heading for the exits.
In the space of just 10 minutes, five investors put several thousand dollars into a bitcoin ATM in central Sydney to buy more of the cryptocurrency at what they see as discount prices.
But the experts are not confident about what the future holds for the major cryptocurrencies.
Mr Weston said no-one really knows how this will play out in the longer term.
“What we’re seeing is part of the evolution of bitcoin,” he said.
“We’ve seen the mass involvement. We’ve seen the hysteria stage. We’ve seen the hype stage, and now its come onto the regulators’ radars as part of this bigger picture.”
‘Cryptocurrencies will come to a bad end’
The crash in prices comes soon after the man widely believed to be the world’s savviest investor, Warren Buffet, said “I can say almost with certainty that cryptocurrencies will come to a bad end”.
It also follows a new report in the Journal of Monetary Economics, suggesting that the early price rises for bitcoin, which initially pushed it over $US1,000, back in 2013 were manipulated by one of two actors.
Huge price swings like these also make many question the usefulness of the cryptocurrencies as a medium of exchange. It is hard to agree on a price if it is shifting so remarkably fast.
Australia is looking to follow Japan in regulating cryptocurrencies.
Legislation has passed Parliament that will force cryptocurrency exchanges to disclose details of investors and transactions.
Australia’s financial crime fighting agency AUSTRAC will be tasked with keeping an eye on trading to try to stop cryptocurrencies from being used for money laundering and financing terrorism.