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By Lee Kyung-min
The cryptocurrency market is undergoing significant adjustments, rapidly weakening investor sentiment that has remained largely undeterred over the past few years amid the lack of regulations and cheap liquidity pumped in to weather the COVID-19 pandemic.
The future course of the digital financial investment vehicle will be determined by how heavy the regulations become, a factor equally critical to the performance of the asset, the capital gains tax on which has been delayed for another year.
Some say it remains unclear whether Bitcoin, one of major cryptocurrencies, will be able to withstand the slew of changes in the macroeconomic market conditions unfavorable to investors, notably the end of tapering by the U.S. Federal Reserve and subsequent rate hikes next year.
Others say that high price volatility could become extreme at times, but that the overall uptrend will not be wildly upended, an assessment reflecting the continued increase in the number of highly risk-averse institutional investors, whose behavior is almost exclusively governed by the guarantee of profit.
The price of bitcoin hit a high of over 79 million won ($67,000) in early November, but since plunged to a low of slightly over 54 million won, Dec. 17.
This is part of a dramatic price fluctuation over the past year, since beginning at around 30 million won in January. It then hit a new high in just three months, before exceeding 70 million won in mid-March, followed by 80 million won in April.
The surge was driven by the Nasdaq listing of Coinbase Global, a U.S. crypto exchange, a cause for great optimism that the virtual asset will be fully integrated as part of a legitimate financial investment method sooner than expected.
The possibility of Bitcoin's price touching 100 million won was floated thereafter, since the inflation-hedged asset is relatively insulated from the sharp depreciation in value in the economy, where the pandemic-induced cheap emergency funds were accelerating concerns about a decline in asset value compared with currency value.
But the prices fell steeply this month and last, impacted by the emergence of the Omicron variant and the announcement of the U.S.' Biden administration that the capital gains tax rate will be raised to up to 39.6 percent, from the current 20 percent.
Also posing a downside risk is criticism of the digital asset over its anti-green characteristics amid the rapid spread of the environmental, social and corporate governance (ESG) drive.
Heavy energy consumed to mine cryptocurrency, according to some market watchers and environmental advocacies, will eventually lead to a decline in crypto asset prices, since the carbon-heavy electricity dependence will increasingly be frowned upon.
"Cryptocurrency certainly has growth potential, but the risks and volatility are just as great," an industry official said. "How the new financial investment adapts to the new environment will set the price and trading volume."
