Bitcoin tumbled 18 per cent on Tuesday to a four-week trough close to USD $11,000, after reports that a ban on trading of cryptocurrencies in South Korea was still an option drove fears grew of a wider regulatory crackdown.
Bitcoin’s slide triggered a massive selloff across the broader cryptocurrency market, with biggest rival Ethereum down 23 per cent on the day, according to trade website Coinmarketcap, and the next-biggest, Ripple, plunging 33 per cent.
South Korean news website Yonhap reported that Finance Minister Kim Dong-yeon had told a local radio station that the government would be coming up with a set of measures to clamp down on the “irrational” cryptocurrency investment craze.
South Korea had said on Monday that its plans to ban virtual coin exchanges had not yet been finalized, as government agencies were still in talks to decide how to regulate the market.
Bitcoin slid on the latest news, trading as low as $11,191.59 on the Luxembourg-based Bitstamp exchange, down 18 percent on the day, for a short period putting the digital currency on track for its biggest one-day fall in three years.
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“It’s mainly been regulatory issues which are haunting the cryptocurrency, with news around South Korea’s further crackdown on trading the driver today,” said Think Markets chief strategist Naeem Aslam, who holds what he described as “substantial” amounts of bitcoin, Ethereum and Ripple.
“But we maintain our stance. We do not think that the complete banning of cryptocurrencies is possible,” he said.
Cryptocurrencies enjoyed a bumper year in 2017 as mainstream investors entered the market and as an explosion in so-called initial coin offerings (ICOs) – digital token-based fundraising rounds – drove demand for bitcoin and Ethereum, the second-biggest digital unit.
The latest tumble leaves bitcoin down more than 40 percent from the record high around $20,000 it hit in mid-December, wiping about $130 billion off its “market cap” – the unit price multiplied by the total number of bitcoins that have been released into the market.
The news from South Korea came as it emerged a senior Chinese central banker had said authorities should ban centralized trading of virtual currencies as well as individuals and businesses that provide related services, according to an internal memo from a government meeting seen by Reuters.
Bloomberg reported on Monday that Chinese authorities plan to block domestic access to Chinese and offshore cryptocurrency platforms that allow centralized trading.
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“(It) seems like it’s uncertainty spooking the markets,…with regulations unclear,” said Charles Hayter, founder of data analysis website Cryptocompare. “(Traders) are taking profits on the increased risk scenarios going forward.”
A director at Germany’s central bank said on Monday that any attempt to regulate cryptocurrencies must be on a global scale as national or regional rules would be hard to enforce on a virtual, borderless community.
By 1000 GMT bitcoin was trading down 16 percent on the day at around $11,500 on Bitstamp.