Cryptocurrencies lose shine amid crackdown by authorities

12 January 2018

Cryptocurrencies, which were hitting new highs till the first week of this year, have seen a fesh a bloodbath in the last couple of days. Reports after reports of authorities across the world clamping down on digital currencies, especially bitcoin, has led to a loss of over $150 billion in market capitalisation of the cryptocurrency market, Moneycontrol reports.

From its peak of $835.5 billion achieved on 7 January, the market cap stood at $677 billion on 11 January. That means $158 billion or nearly one-fifth of the total valuation has been wiped off the cryptocurrency market in just four days, as per data provided by CoinMarketCap.

In fact, early on Thursday, the loss was over $200 billion. The total market cap dropped to $628 billion in early trade before climbing.

Bitcoin slumped as South Korea's justice ministry reiterated a proposed ban on cryptocurrency venues, fuelling concern that a government crackdown will erode one of the world's biggest sources of demand for digital currencies, Bloomberg reported on Wednesday.

The ministry is preparing a bill that would outlaw cryptocurrency trading via exchanges, justice minister Park Sang-ki told reporters. Korea's government disclosed a similar proposal on 28 December, though at the time it also included other options such as allowing trading to continue under tighter regulation.

In last four days, bitcoin has lost $65 billion, Ripple $65 billion, Bitcoin Cash $9 billion and Tron $5 billion in their valuations. On the other hand, Ether was one of the rare currencies which added $18 billion to its market cap.

he flurry of negative news from South Korea where the police and tax agencies raided largest cryptocurrency exchanges including Bithumb and Coinone dampened the mood on cryptostreet.

The clampdown which resulted in a shortage of cryptocurrencies in the local market pushed the rates up in South Korea. CoinMarketCap, a popular data site, therefore removed the exchange prices from South Korea in its calculation, resulting in an apparent drop in prices of currencies.

''This morning we excluded some Korean exchanges in price calculations due to the extreme divergence in prices from the rest of the world and limited arbitrage opportunity. We are working on better tools to provide users with the averages that are most relevant to them,'' CoinMarketCap said on Monday.

Many people including David Schwartz, chief cryptographer at Ripple, opined that the decision triggered some panic selling. ''Coinmarketcap's decision to exclude Korean prices from the displayed XRP price made the price appear to drop, likely triggering some panic selling,'' he said on Twitter.

However, he added that the new price was "more accurate and meaningful".

The fear of China restricting the electricity supply to cryptocurrency miners also added to the bearish mood in the market. China accounts for over 70 per cent of the bitcoin network's collective hash rate.

In the last couple of days, almost all major cryptocurrencies were trading in the red. Even at the time of reporting on Thursday, major currencies including Bitcoin, Ether, Ripple, Cardano, Litecoin were trading at a lower value compared to previous day. Bitcoin Cash and IOTA were the only major currencies which were bullish, the Moneycontrol report says.

Governments around the world are increasing scrutiny of cryptocurrencies as surging prices attract everyone from individual investors to Wall Street banks. Korea has emerged as something of a ground zero for the speculative frenzy, with the nation's prime minister warning recently that the boom might corrupt the nation's youth. The government said in December that it would be conducting on-site investigations of the nation's cryptocurrency exchanges, according to Bloomberg.

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