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(Yonhap Feature) Seeking fool's gold, young people jump into cryptocurrency frenzy

2018/01/26 10:50

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SEOUL, Jan. 26 (Yonhap) -- Looking at a smartphone app showing the prices of cryptocurrencies, Lee Jae-sung sighed. The 24-year-old university student bought 5 million won (US$4,666) worth of a little-known cryptocurrency called Nxt last month.

To date, the cryptocurrency has lost about 64 percent of its value, and Lee has been suffering from insomnia these days.

"I am repeatedly asking myself whether I should sell this at a loss, but I can't make a decision," Lee said.

Lee is one of many young and Internet-savvy cryptocurrency aficionados who dove into the highly volatile market, apparently after being exposed to unconfirmed stories of making easy money through cryptocurrencies.

Prices of cryptocurrencies in South Korea have shown signs of correction for weeks since the government unveiled a series of measures to prevent speculative investment into virtual coins.

At a bitcoin community site on Naver, the nation's largest Internet portal, there are a growing number of panicking young people losing money over cryptocurrencies. The site boasts 416,488 members.

South Korea is home to one of the world's biggest private bitcoin exchanges, with about two million people estimated to own bitcoin, one of the best-known digital currencies.

Despite a boom in cryptocurrency transactions, cryptocurrency exchanges go largely unregulated in South Korea as the virtual coins are not recognized as financial products, with the country lacking rules for protecting virtual currency investors.

Kim Jung-sik, a professor of economics at Yonsei University, said young people seem to overlook the risks of cryptocurrency investment, partly because they see a possible get-rich-quick opportunity amid a widening gap between rich and poor.

"The reason why young generations are driven into cryptocurrencies is they think cryptocurrencies are the last opportunity for turning their lives around," Kim said.

With the government increasingly worried about the cryptocurrency frenzy, policymakers have talked about the idea of shutting down cryptocurrency exchanges.

The was met with an immediate backlash, and tens of thousands of people filed an online petition asking the presidential office to stop the clampdown against cryptocurrency trading.

From next Tuesday, banks will begin issuing new trading accounts for cryptocurrencies by introducing a system that bans the use of anonymous accounts in cryptocurrency transactions.

Opening cryptocurrency accounts has been banned for weeks until the banks install the system, which ensures only real-name bank accounts and matching accounts at cryptocurrency exchanges are used for deposits and withdrawals.

The real-name trading system is part of government measures to curb speculative investment into virtual coins, amid growing fears that a cryptocurrency bubble may be set to burst.

The new system will also require cryptocurrency exchanges to share users' transaction data with banks.

Some cryptocurrency traders and exchanges predicted that prices of virtual coins would rebound as new money is expected to kick in when banks allow people to open new cryptocurrency accounts.

Others said prices will adjust further amid media reports that only four major exchanges -- Bithumb, Upbit, Coinone and Korbit -- are likely to attract new investors as banks are expected to reject transactions with small and mid-sized exchanges.

Still, it is uncertain whether bitcoin and other major cryptocurrencies will become a fiat currency in the future.

However, bitcoin's vertiginous surge last year, when it jumped about 1,500 percent, has all the characteristics of historical financial bubbles, some analysts said.

In a research report earlier this week, Goldman Sachs analysts said, "There is no doubt that the rise in bitcoin's price has pushed it into bubble territory."

   "Bitcoin's meteoric rise in a short term has dwarfed the rise seen in the dot-com bubble," the report warned.

"We also believe that cryptocurrencies have moved beyond bubble levels in financial markets, and even beyond the levels seen during the Dutch 'tulipmania' between 1634 and early 1637," it said.

South Korea's top financial regulator also echoed the view.

"Cryptocurrencies have no guaranteed value. Therefore, due to its highly volatile nature, investment in cryptocurrencies always bares risks of a huge loss," Choi Jong-ku, chairman of the Financial Services Commission, told a recent press conference.

"Please be extremely cautious when making investment decisions," Choi said.

(END)

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