Experts say China is one of the world's biggest sources of bitcoin mining. — Reuters
BITCOIN gripped the investing world last year like no other asset class in recent memory, minting new millionaires, sparking a pivot to blockchain technology and attracting a wave of interest from institutional investors.
In 2018, bitcoin has been a total dud.
The price of the cryptocurrency dropped 28% in January, its worst monthly drop in three years, according to research site CoinDesk Inc. It fell below $10,000 on Wednesday, a two-month low. And it is down 48% from its record of $19,282.73 reached in mid-December.
The plunge is noteworthy even by bitcoin’s standards. While it has been known to lose over a quarter of its market value in the span of a day, those declines have typically been short-lived. Over the past five years, bitcoin has fallen by more than 30% in a given month only three times, the latest in January 2015, when it declined 32%.
Late Wednesday, bitcoin was at $9,999.26, according to CoinDesk.
While several factors are driving the decline, the regulatory clampdown occurring around the world is an important reason why bitcoin and the broader cryptocurrency market have fallen on tougher times.
On Tuesday, the Securities and Exchange Commission halted a $600 million initial coin offering, one of the biggest U.S. interventions into the sector. An initial coin offering is a process by which a company creates a new virtual coin or token and offers it for public sale. In January, the top U.S. derivatives regulator brought charges in three cases involving virtual currencies.
Further hurting sentiment, Facebook Inc. said Tuesday that it would stop all ads on its platform that promote cryptocurrencies and initial coin offerings. The social-media company said it wanted to eliminate promotions of “financial products and services frequently associated with misleading or deceptive promotional practices.”
In Asia, the Chinese government has taken steps to limit bitcoin mining operations, a blow to a large market for minting new bitcoin.
Japan, which has held a favorable stance on cryptocurrencies, was stung by a hack last week in which $530 million of a cryptocurrency called NEM was swiped from exchange Coincheck Inc.
Meanwhile, South Korea has undertaken new legislation aimed at calming its red-hot bitcoin market.
“All of this is frightening,” said Kim Sang-woo, a 29-year-old from Seoul who says he has been trading cryptocurrencies for nearly a year.
Mr. Kim said he initially entered the cryptocurrency market with a $20,000 investment on South Korean exchanges, spread out over nine digital currencies, including bitcoin and ether. Through trading in and out of these coins, he said he made 10 times his initial investment.
But now he said he has cut his exposure to digital currencies, instead favoring Korean stocks. “Valuations were way too high,” he said. “I still see positive catalysts and I’m sure all the regulation is just a way of eventually building up a bigger market. But it’s tough right now.”
For sure, bitcoin has still been highly profitable for many investors. It remains up by some 900% from where it traded at the beginning of last year. And investors who bought bitcoin as recently as three months ago have more than doubled their money.
But in a further sign of the regulatory pressure, South Korea’s customs service on Wednesday said that it had found illegal foreign-exchange dealings amounting to 637.5 billion won ($594 million) carried out through cryptocurrencies.
Kim Yong-chul, a director at the custom service’s financial investigation division, said the figure is likely to increase as the probe continues.
By South Korean law, any foreign remittances above $3,000 require supporting documentation, while cumulative overseas transactions that exceed $50,000 annually are also monitored. But cryptocurrencies don’t face any remittance restrictions.
The customs service’s findings came a day after South Korea’s government implemented stricter verification checks for cryptocurrency investors, who are now required to hold certified bank accounts to buy cryptocurrency using fiat money, or legal tender.
Also Tuesday, a South Korean court for the first time made a ruling to confiscate bitcoin proceeds, as part of a judgment against an illegal pornography website. The court ruled that the website operator should forfeit some 191 bitcoin, about $1.91 million based on its current value, in addition to a fine. - WSJ
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