According to a Bloomberg report, South Korea may close some of its cryptocurrency exchanges next year.
Closing those exchanges may harm Bitcoin (BTC) prices, given that South Korea is a major hub for crypto traders. I’m more worried about its effect on Ripple (XRP) prices.
Why? Because XRP trading volumes have historically depended on support from Korean traders. And if those Korean traders are told, “You will not be able to trade XRP for Korean Won after XYZ date,” we will likely see a massive sell-off.
Something similar happened to Litecoin earlier this year when the government of China banned cryptocurrency trading to yuan.
LTC had leaned heavily on Chinese demand, so its price collapsed when those investors called it quits. South Korea is to XRP what China was to LTC.
Not only does the country make up 40% of the total XRP trading volume, but its XRP/KRW pairs offer a significant premium to global rates.
Ripple Price Chart:
Regulators believe this speculation is dangerous, both for the country and investors who have staked their hopes on easy returns. Those who borrowed to invest in cryptos are particularly vulnerable to a downturn.
In any case, the dramatic volatility of cryptos is perceived (in government circles) as an economic risk the country cannot afford.
“Cryptocurrency speculation has been irrationally overheated in Korea,” the government said in the statement. “The government can’t leave the abnormal situation of speculation any longer.” (Source: “Bitcoin Tumbles Over Exchange-Closure Fears,” Bloomberg, December 27, 2017.)
Just to be clear, we have no idea where the government will land on this decision.
The Ministry of Justice recommended closures as a possibility, but there are less forceful options, such as requiring all transactions take place with real names.
In either case, XRP prices could undergo a retracement in the coming weeks. To see how it will play out, we should refer back to the Litecoin example.
Yes, there was a gaping hole in demand because of the Chinese trading ban. However, the retracement in LTC eventually drew in new investors from around the world, including many in the U.S. Within months, a new groundswell of support sent the Litecoin price to all-time highs.
Analyst Take:
Even if XRP is damaged by a Korean closure, we estimate that U.S. investors will eventually plug that hole, particularly if Coinbase adds XRP to its trading platform. As such, we will not alter our $2.00 Ripple price prediction for 2018.
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