There is growing recognition that the investment in virtual currencies is speculative due to a series of unusual price movements on a South Korea’s cryptocurrency exchange.
According to industry sources on January 14, the prices of newly listed digital currencies – Civic and Enigma – plunged as much as 99 percent on the domestic exchange Gopax at 11:30 pm on January 12.
As Civic and Enigma became tradable on the Gopax , investors offered Civic at 1,809,900 won (US$1707.45) and Enigma at 1,810,000 won (US$1707.55) and other investors bought the virtual currencies at the same prices. However, the price of Civic and Enigma nosedived a whopping 99.9 percent and 99.4 percent to 1,600 won (US$1.51) and 10,080 won (US$9.51), respectively, in less than five minutes.
The two cryptocurrencies showed a sharp decline on the market because investors accepted abnormally high prices from the beginning without checking their market prices.
When a new digital currency is listed on exchanges, its listed price is determined depending on trading between sellers and buyers. Exchanges don’t intervene in listing pricing. When Civic and Enigma were listed on the Gopax, the international price of Civic and Enigma were some US$1 (1060.90 won) and US$6 (6,345 won).
However, only a small number of domestic exchanges could check the market price of the digital currencies, including Upbit. Buyers bought them without deciding whether or not their prices are reasonable but just believing the rising tendency of virtual currencies after listing, while sellers offered unreasonably high prices using this sentiment. Gopax is a new exchange that started providing services in November last year.
There were similar transactions on a leading domestic exchange. The price of Ethereum Classic once vertically dropped from around 55,000 won (US$51.80) to 1,000 won (US$0.94) on the Coinone on the 9th but rebounced back to the 50,000 won (US$47.10) level. The figure fell to one fiftieth and then grew fiftyfold in an instant.
Coinone said that it was not a system error but a normal transaction. In short, a seller actually tried to sell it at 1,000 won (US$0.94) and a buyer luckily bought it at such a price.
An investor said, “The transactions of Civic and Enigma on the Gopax can sound the alarm to investors at the moment when the government says that the coin market is a frenzy, speculation and gamble.”