Korea has become the latest Asian country to deny the virtual currency bitcoin legal status as a currency. The government of Thailand similarly denied bitcoin’s legal status earlier this summer, and just last week officials from major Chinese banks banned interbank bitcoin trading, warning that the currency was speculative and lacked legitimacy. The U.S. government has not taken an official position on the virtual currency yet, but they did recently close down a large bitcoin trading operation for licensing violations.
Bitcoins are mined by solving complex math problems and only 21 million bitcoins will ever be produced. This means there is a limited supply of bitcoins, and that they cannot be inflated or devalued by a government just “printing” more of the virtual currency. This makes them attractive to many people. Given they can be electronically transferred, bitcoins are also in effect a payment system unto themselves, which adds to their convenience and cachet.
Bitcoins are also anonymous, which means they are a popular currency in the grey and black markets that flourish on the Internet. Bitcoins were supposedly the most popular virtual currency on the recently closed-down Silk Road black market site.
The Korean decision about bitcoins came following a week-long debate among officials at the Ministry of Strategy and Finance, the Bank of Korea, the Financial Services Commission and the Financial Supervisory Service.
The statement released said that bitcoins do not meet standard regulations governing the transactions of currencies via the Internet or commercial institutions. A Bank of Korea official said the virtual currency is extremely volatile because it does not have an “intrinsic value,” given that there are no real indicators to measure it against, and that it is not suitable for use in the financial system.
Volatility has become the name of the game. Bitcoin prices have been swinging wildly over the last couple of months, ranging from $200 to $1,200.
Bitcoin prices were relatively stable around $13-15 for the first four years of its existence, then interest picked up in Spring 2013. Prices spiked as high as $238 and stabilized in the $120-$140 range for several months. Then the price exploded in November, briefly trading as high as $1200 before dropping to the current $500-700 range.