Cryptocurrency’s Red Tuesday Firesale Leaves Everyone Speculating

The cryptocurrency sky fell yesterday as 49 of the top 50 coins (by Market Cap) were down with only Tether (USDT) posting a gain. In fact, only two coins, KuCoin Shares and VeChain, showed losses less than 10 percent and only 12 of the top 50 have lost less than 20 percent of their value.

The effects of the market-wide shock are clear, but explanations vary based on where you get your news. In an effort to make sense of the situation, here are the stories and rationales explaining the systemic drop.

South Korea

Korean leadership this week has been fragmented on the subject of cryptocurrencies, causing a public backlash in a country that has enthusiastically embraced the new asset class.

On January 16, 2018, Yonhap News reported that the Prime Minister Lee Nak-yon stated, “What the justice ministry is going to do is not immediately shut down (exchanges) … As this is a legislative issue, it is not possible to shut them down without going through the National Assembly.”

This seemingly contradicts a radio interview given earlier in the day by Korea’s finance minister, Kim Dong-yeon, who stated in a radio interview with TBS Radio, “The government stance is that it needs to regulate cryptocurrency investment as it is a largely speculative investment … The shutdown of virtual currency exchanges is still one of the options (that the government has).”

The perceived discord from top Korean officials is a carry over from January 11, 2018, reports where Justice Minister Park Sang-ki stated regulators were preparing legislation to halt cryptocurrency trading. Those statements were walked back by the presidential office (The Blue House) later in the day, when a spokesperson relayed that the government has not yet decided on shutting down cryptocurrency exchanges. This statement came a mere seven hours after the Justice Minister’s statements and after a petition to the presidential office gained viral support. This communicative disharmony doesn’t even address the raids on Korean exchanges Coinone and Bithump last week.

Bloomberg (which also cites China as a causal factor), New York PostMarketWatch, and others have cited the latest actions today by South Korea as an inciting reason for the digital currency market-wide bloodbath.

China Threatens More Bans

Korean Leadership may not be the only source of consternation for the cryptocurrency market. Some media outlets, such as Quartz have pointed towards Korea’s much larger neighbor to the West, China.

China has had a tumultuous history with cryptocurrencies. In the past few months alone, the Central Bank of China banned ICOs in September 2017, followed by a January 2, 2018, leaked memo where the leading internet-finance regulator in the country, the Leading Group of Internet Financial Risks Remediation, called for an orderly exit of crypto-mining operations. The forced exodus of crypto-mining operations, according to TechCrunch, will slowly extinguish a group that is estimated to produce three-quarters of the world’s supply of bitcoin.

The final straw for the China thesis were reports on Monday, January 15, 2018, that the Chinese government is escalating its crackdown to include domestic cryptocurrency trading by planning to block access to online platforms, exchanges, market-makers and mobile application platforms that cater to Chinese citizens.

While Chinese citizens have in the past used VPNs to work around similar blocks to sites such as Google and Facebook, China has been determined to stem capital outflows from the country (and the government has ordered a crackdown of VPN usage starting next month).

Cryptocurrencies have provided the potential for unregulated outflows of capital from the mainland, so it seems that the cryptocurrency facilitators in China may face a different fate than their internet counterparts.

The U.S., Brazilian, Indian, French, German Regulator Effect

Regulation is the name of 2018. If the regulatory issues out of South Korea and China were standalone examples, that may be enough to explain the sell-off. But other regulatory fears may have been increased by a flurry of announcements over the past week:

On January 12, 2018, U.S. Treasury Secretary Steven Mnuchin mentioned a working group comprised of multiple federal agencies had been formed to look into how to regulate cryptocurrencies…

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