Bitcoin, Ethereum expected to define landscape for virtual asset market
By Lee Kyung-min
Participants of the cryptocurrency market are expected to realign investment interests around two top-traded digital assets, bitcoin and Ethereum, as illustrated by a growing number of global traditional financial service providers seeking to roll out virtual asset-related products.
Bitcoin, the most popular and widely traded digital coin, however, consumes an enormous amount of electricity, a reason why the second-in-class Ethereum is emerging rapidly as an alternative mostly for its low energy consumption and greater scalability.
Global investment bank JP Morgan is expected to release bitcoin fund products as early as this summer, the latest to join two other key industry players ― Morgan Stanley and Goldman Sachs, both of which launched bitcoin funds for high-net-worth customers.
Altcoins, an umbrella term encompassing almost all cryptocurrencies except for a few top-traded ones, will not be able to establish itself as a mainstream means of investment due to its sketchy manufacturing process and unreliable sustainability.
Unlike investors around the world that mostly trade bitcoin, over 90 percent of crypto investments from Korea are made in altcoins, long criticized for a lack of accountability and high risk of losing money.
This is because the non-mainstream coins take only minutes to be issued with a few lines of relevant program code to duplicate bitcoin or Ethereum, a reason why around one new coin is issued every 17 minutes leading to more than 10,000 different coins listed on crypto exchanges around the world.
The figure quadrupled in less than two years, up from 2,457 in August 2019. It increased rapidly at the end of last year and early this year. The figure rose to 9,420 as of May 22, up by more than 500 from around 8,900 in March.
Financial authorities are urged and likely to prioritize ways to prohibit the listing of low-rated shaky currencies, putting an end to exchanges making stable gains in trading fees amid a lack of consumer protection responsibilities over what could later be delisted causing enormous investor fraud.
Top-rated bitcoin and Etherum may prevail in the long term. But the altcoin investment craze by people in their 20s and 30s will not recede any time soon, since they were practically driven to seek the digital asset after housing prices skyrocketed over the past few years due to dozens of failed government policies, notably tighter lending rules and heavier tax on owners of multiple homes.
According to data from CoinMarketCap, a global cryptocurrency trading data service provider, Korea accounted for 10 percent of the global transaction volume.
Over 4.62 trillion won has been invested from Korea as of February, a six-fold increase from a year earlier. About 94 percent is Altcoin investments, meaning bitcoin investments accounted for a mere 6 percent in Korea. This sharply contrasts with bitcoin's global market share of 51 percent, an indication that Korea is isolated from the global market.
The number of altcoins is soaring due to a lack of requirement for issuers to provide the issuer's philosophy, intended use, market circulation and future plans in detail.
In a nine-page white paper titled “Bitcoin: A Peer-to-Peer Electronic Cash System,” the writer Satoshi Nakamoto outlined the conceptual and technical details of a payment system that?would allow individuals to send and receive payments without involving any intermediary financial institutions.
Similarly, Ethereum has a 36-page white paper published by its founder Vitalik Buterin in 2013. By contrast, altcoins issued here have jumbled up words including the Fourth Industrial Revolution, artificial intelligence and blockchain, clearly lacking any originality.
“Altcoins are issued and listed because issuers can rake in cash without any special technical excellence, This is underpinned by investors that blindly follow the craze seeking double- or triple-digit increase in value in just a few hours or days,” said Park Sung-jun, head of the Blockchain Research Center and a professor at Dongguk University.
Musk factor
The price of bitcoin jumped about 4 percent last Monday (local time) after Tesla CEO Elon Musk tweeted that he was having “active discussions regarding the sustainability of the digital coin.”
Bitcoin was trading around $38,074 (42.5 million won), around 3:42 p.m. on May 27. But within minutes, the price had shot up over $39,500. Overall, the coin jumped more than 17 percent in the 24-hour period.
Musk posted on Twitter: “Spoke with North American Bitcoin miners. They committed to publish current & planned renewable usage & to ask miners WW to do so. Potentially promising.”
Bitcoin sank to an all-time low in November 2019 when China cracked down on crypto businesses. Bitcoin exchanges in China, however, promptly relocated to neighboring countries to bypass a trading ban.
Japan legalized cryptocurrencies as legal tender in 2017 following the passage of the Virtual Currency Act, under which cryptocurrencies are defined and described.
They are treated as assets for accounting purposes and the Japanese government issued a list of government-approved virtual currencies. They are considered legitimate and therefore can be traded, sold or promoted to the public.
Korea maintains that taxes of around 20 percent on gains derived from cryptocurrency trading will be imposed as planned. The finance ministry will impose the tax after recognizing the gains as “other income,” an easier way for the government to levy the tax as opposed to property tax.
One bitcoin traded for $33,941.8, and Ethereum $2,227.05, May 30. Bitcoin's market capitalization is 804 trillion won and Ethereum 352 trillion won, according to market trackers.