By Gaurav S. Iyer, IFC Published : September 29, 2017
Although XRP prices took a major hit when China banned cryptocurrency exchanges, there was little to fear at that time. Chinese trading meant nothing to Ripple. But a crackdown in South Korea would be bigger Ripple news and could affect our Ripple price prediction.
Collectively, the volume from Chinese exchanges was less than five percent. But Korean exchanges frequently account for more than 70% of Ripple’s trading volume, meaning that we need to watch that regulatory environment with an eagle eye.
So what’s going on in South Korea?
Put simply, the country’s top financial regulators banned initial coin offerings (ICOs). For those who may be unfamiliar with the term, ICOs are tokens that a company or project introduces on the blockchain for the purposes of raising capital.
It has become an extremely popular financing model in the last six months, but now South Korea is drawing a line in the sand.
In a report from the Financial Services Commission (FSC), regulators say that ICOs are in “violation of the capital market law” and will henceforth be illegal “regardless of technical terminology.”
They also promise an “intensive crackdown” and “sharp penalties” for those that continue to deal in the ICO market. The language was incendiary, stopping just short of fire and brimstone, which is why some investors believe that Korea could extend the ban to crypto trading in general.
Considering that China followed that trajectory a few weeks ago, it’s not unreasonable to worry about South Korea going the same way. But relax, there are subtle differences.
China was considerably more cagey about the direction of its policy shift, whereas South Korean regulators laid it out on the table. They seem to be shaping the industry, not crushing it.
Even some of the tougher changes, like a ban on leverage, suggest that they are working to make cryptocurrencies work rather than nixing them altogether.
At the time of writing, XRP is down 0.83% against the dollar to $0.194717.
We believe that South Korea will continue to allow cryptocurrency mining and trading, though it is likely to increase oversight and audit practices. This makes a lot of investors nervous, but it’s a good thing for the long-run Ripple price prediction. I can’t stress this point strongly enough.
There is simply no way that Ripple and other cryptocurrencies reach scale without first reassuring the majority of users that they play by the rules. Until now, many of those rules were just guidelines, or else nonexistent.
So if you’re looking for a silver lining, consider that these rules will lend XRP the clarity to reach its full potential.