Thursday, January 18, 2018

Crypto Market Will Rebound

South Korea, a hotbed of cryptocurrency trading, considers shutting down domestic cryptocurrency exchanges. Bitcoin fell 50%. Many news sources report it as a "plunge" of cruptocurrency that can cause the Bitcoin bubble to finally burst. I don't think so. Here is why.

1. It would not be easy to ban cryptocurrency in South Korea

South Korean gov't regulators announced their intention to ban cryptocurrency trading on exchanges. For that bill to become law, it would have to overcome huge resistance from public and pass through parliament. That will take months. 

2. Even if the ban is implemented, it will be easy to circumvent

Cryptocurrency is decentralized, anonymous and electronic. It's practically impossible to ban it without global consensus. There is no global consensus and in fact some nearby countries (e.g. Singapore, Hong Kong, Japan) welcome cryptocurrency trading. Investors can go abroad, use virtual private networks (VPNs) and offline wallets the size of a USB stick.  Decentralized exchanges, such as Shapeshift or Stellar Dex, do not require identification and can be accessed from anywhere. Cryptocurrency wallets such as Exodus and Jaxx are linked to such exchanges, so trading and storing the assets can still be anonymous. VPNs easily allow hiding trader's real IP address and substituting it with the IP address of another country, without any specialized technical skills. In other words, if somebody is tech savvy enough to trade cryptocurrency in the first place, they can easily circumvent the unlikely ban.

3. South Korea's importance in the crypto market is overstated

South Korea accounts for between 5 and 15 percent of daily Bitcoin trading. Sure, that's a lot for a small country. But, even if the local exchanges are banned, those traders will not all vanish. Many will just go trade somewhere else.

4. Volatility is in the cryptocurrency's nature

We have already witnessed crypto drops of over 50%. Most recently, China's shutdown of local exchanges in September caused a 50 percent drop in Bitcoin, but prices rebounded eight-fold to almost $20,000 in December. That's just the nature of the crypto trading game.  Even the US SEC, Europol, China and a number of other major influencers could not "burst the bubble" with their warnings and bans. Even with the latest 50% price drop, Bitcoin is still worth 10 times more than it did a year ago today.