Bitcoin prices plunge as South Korea says ban still an option

Bitcoin and other digital currency prices plunged after South Korea's top financial policymaker said Tuesday that a crackdown on trading of crypto currencies remains a possibility.

Finance Minister Kim Dong-yeon said in an interview with local radio station TBS that banning trading in digital currencies was "a live option." He said the decision was subject to a thorough government review.

"There are no disagreements over regulating speculation," such as using real-name accounts and levying taxes on crypto currency trading, Kim said. Shutting down digital currency exchanges is "a live option but government ministries need to very seriously review it," he said.

Bitcoin was trading at $12,615.60, down 7.1 percent from the day before as of 8:03 a.m. GMT, according to Coindesk. The price of ethereum, another digital currency, had slipped 7.8 percent to $1,190.45 as of 8:04 a.m. GMT.

South Korean officials' remarks have swayed the global markets for bitcoin and other crypto currencies in the past few weeks. The country has seen a huge bitcoin craze, with young and old betting on the crypto currency to build wealth. The high demand from South Korean investors has created what investors call a "kimchi premium," the extra price the South Koreans have to pay to buy digital currencies, sold in South Korea at higher than the average global prices.

South Korean officials are concerned about reports of tax evasion by some top exchanges, according to Kerrie Walsh, assistant economist at Capital Economics, in a research report. investors are also jittery about speculation that China may ban or restrict bitcoin mining over concerns about financial stability.

"This has clearly rattled investors. And understandably so," Walsh noted. "South Korea holds some of the world's largest cryptocurrency exchanges, so a ban is expected to disrupt Bitcoin trading."

A ban or restriction on bitcoin mining in China could further weaken the market, given that the majority of mining occurs in China, Walsh added. 

"If Bitcoin isn't mined, transactions aren't approved and new Bitcoins aren't produced, which could grind the whole system to a halt. So a crackdown there could bring chaos to the Bitcoin community," Walsh wrote.

Last week, the South Korean justice minister's remark that the country will ban bitcoin and other digital currencies triggered big sell-offs and a public outcry. The presidential office then said that no final decision had been made.

An online petition on the presidential office's website has drawn more than 210,000 requests from people asking the government not to ban trading in digital currencies.

"We the citizens were able to have a happy dream that we had never had in South Korea thanks to crypto currency," the petition reads. "You may think you are protecting the public but we citizens think that the government is stealing our dream."