Although the price of bitcoin rebounded in Korea after “Black Friday” when it plunged to as low as 8 million won (US$7,363) on Feb. 2, it has come close to a level of monetary stringency, the last stage of “bubble cycle.”
According to the Korea Institute of Finance on the 4th, researcher Lee Kwang-sang said in a financial brief report titled “Recent Bitcoin Prices Slump & Cryptocurrency Ecosystem” that the price of bitcoin is going through a substantial adjustment and is most likely to be near to the monetary stringency level, shortly before the heavy fall in terms of cycle.
Lee applied a new model of bubbles driven by credit cycles, which is developed by US economist Hyman Minsky. According to the theory, there are basically five stages of the credit cycle: displacement, boom, euphoria, profit taking, and panic. Lee said bitcoin has already reached a state of euphoria in November last year. Reaching the state of euphoria, investors buy bitcoin in large quantities due to anxiety about the possibility of being left behind and expectations of more profits. However, governments, such as South Korea, China and India, have recently strengthened regulations on digital currencies, investors' confidence has been shrunk and doubts has been expressed about the rise in bitcoin prices. Therefore, bitcoin is about to enter a state of profit taking, according to Lee.
Meanwhile, Jeong Tae-ok, spokesperson of the main opposition Liberty Korea Party, proposed “special law on cryptocurrency business” on the same day that is designed to guarantee the freedom of business by institutionalizing digital currency exchanges and promote cryptocurrency business by providing protection for investors. The law includes the definition of virtual currencies, authorization standards for related businesses, obligation to verify the real name of cryptocurrency operators, prohibition minors from trading, security measures for safe transactions, liability for consumer damages, ban on money laundering, supervision by the Financial Supervisory Service and self-imposed restrictions.
Jeong said, “As the government announced unorganized regulatory policies without laws related to digital currencies, investors are suffering from losses. We need an institutional framework to guarantee the freedom of business and protect investors.”