Negative Skew Ahead of Emergency Meeting In Korea

South Korean regulators and legislators have scheduled an emergency meeting on Friday to address growing concerns over cryptocurrency related activities in the country. South Korea has been a major driver of the price of cryptocurrencies, with the country’s largest exchange, Bithumb, driving major volume in several cryptocurrencies.  Given the recent rally across the industry, it is our observation that the skew into the event in unfavorable for potential purchasers, given that the outcome of the meeting is difficult to predict. On the dovish side, legislators could add a VAT tax and require further rules and regulations by domestic exchanges. On the hawkish side, legislators could ban the trading of cryptocurrencies entirely.  We note that South Korean regulators banned ICOs back in September. 

The current market backdrop of massive price gains in a short period of time coupled with the rise of volumes in a country new to crypto is eerily similar to the first rally past $1K at the end of 2013. At the time, new money fueled by recently opened exchanges in China was the main driver of the end of year rally, which ended abruptly when the PBOC clamped down on fiat transfers to the exchanges. At the time, China drove an estimated +90% of trading volume, which was a different market structure than today, where Bithumb drives 7-10% of global volumes of BTC, but higher percentages of LTC (13%), XRP (30%), BCH (18%), ETC (30%), QTUM (40%), BTG (62%), DASH (25%), XMR (24%), and ZEC (15%).

We admit it is very difficult to predict the outcome of the situation in South Korea. News organizations Reuters and Nikkei Asia Review have had the most informative reporting herehere, and here.  At odds are the Ministry of Finance, who has been dovish in the past but took a more even stance in an interview on Monday, and the Ministry of Justice and the Prime Minister, who have been most hawkish with calls to ban crypto trading entirely.  We will likely hear something on Friday afternoon in Korea and plan to update clients accordingly.