South Korea bans its financial institutions in dealing with bitcoin

The world’s largest cryptocurrency trader South Korea has banned its financial institutions in dealing with virtual currency such as bitcoin, litecoin, IOTA and others.

Post the announcement, investors will not be able to buy, possess and hold virtual currency as collateral.

According to a statement issued by the Prime Minister’s Office, initial coin offerings (ICOs) – where companies sell newly invented cryptocurrencies to investors for real money will also be outlawed.

The announcement led the price of bitcoin fell by five per cent at Bithumb, South Korea’s biggest bitcoin exchange.

In September, South Korea’s Financial Service Commission had ordered a ban on ICOs and declared that currencies are neither money nor currency nor financial products.

The move by the government and the financial body comes when virtual currency like bitcoin is surging at an all time high. Bitcoin prices have surged from less than $1000 in January to $17,000 this week.

South Korea accounts for some 20 per cent of global bitcoin transactions and about 10 times of its share of the world economy.

This is not the first time when any country has taken such strong measures against cryptocurrencies.

Central banks of many countries such as Russia, China and India have warned against making investments in virtual currency.

Recently, Reserve Bank of India issued a statement and said, “Virtual currency is stored in digital-electronic media that are called electronic wallets. Therefore, they are prone to losses arising out of hacking, loss of password, compromise of access credentials, malware attack etc. Since they are not created by or traded through any authorised central registry or agency, the loss of the e-wallet could result in the permanent loss of the VCs held in them. Payments by virtual currency take place on a peer-to-peer basis without an authorised central agency which regulates such payments."

Last month, finance minister Arun Jaitley said India does not recognise virtual currency as legal tender.

Earlier this year, a committee set up by his ministry had reportedly recommended banning cryptocurrencies over fears that they could be used to launder money and perpetuate frauds.

JPMorgan chief executive officer Jamie Dimon also termed bitcoin a fraud. However, last month, the Supreme Court asked the government to respond to calls to regulate bitcoin.