How Legal Regulation Affects the Rate of Crypto-Currency

The CoinDesk reports that relatively soon authorities in South Korea may deprive cryptocurrency exchanges of significant tax benefits.

South Korean legislation grants tax benefits in the amount 50-100% for subjects of small and medium entrepreneurship (SME), as well as start-ups. Local law also qualifies cryptocurrency exchanges as the SME.

Tax legislation of the country provides the subjects hereinabove with possibility to apply to the tax authority in order to obtain benefit in relation to income or corporate tax. For the first five years since the moment of the business registration such benefits shall be equal to 50-100%, and after the expiry of first five years - 5-30%.

However, the government recognized inexpedience of such provision. According to the opinion of its representatives, operations of the cryptocurrency exchanges are ineffective in creation of value added.

Parliament of the South Korea will consider the proposed amendments at the meeting on August 31, 2018. Anyway, authorities in the South Korea are interested in creation of new technological solutions. That is why benefits may be remained only in relation to technological start-ups, which are focused on development of new products using blockchain technologies.

In the light if the above, there are two tendencies in legal regulation of cryptocurrencies in the South Korea. On the first side, there is a stimulation of new technologies by means of providing tax privileges. On the other hand,there is an attempt to toughen up the legal regulation of cryptoexchanges. Thus, Bloomberg reports that the South Korean Financial Services Comission (FSC) submitted a legislative proposal to adopt relevant laws regulating activities of the cryptocurrency exchanges. According to the Commission, it is necessary in order to prevent money laundering on exchanges and protect interests of the investors. Circumstances described hereinabove had a significant influence on the rate of cryptocurrencies not only in the South Korea, but also worldwide.

After reporting about cancellation of the benefits, at the end of trading day rate of the bitcoin lost approximately 3,77%. Thus, at the moment of reporting about limitation of benefits for cryptocurrency exchanges rate of the bitcoin was about 10 thousand USD. Its collapse had been continuing until the present days. This cryptocurrency fell till the mark less than 6 thousand USD. In recent days there is a growth of the bitcoin rate. However, it is still far from the previous mark equal to 10 thousand USD.

Influence of the legal regulation on the rate of cryptocurrencies also took place in other jurisdictions.

In 2017 Chinese authorities recognized the initial coin offering (ICO) on the exchange for further issue of cryprocurrencies and their sale to investors as illegal operations. Together with reporting about possible prohibition of cryptocurrency exchanges in the country, it resulted the decreasing of the bitcoin rate approximately by 2 000 USD for the period of 14 days, as well as other cryptocurrencies. In conditions of strengthening the legal regulation of activities related to cryptocurrencies, large Chinese exchanges such as Huobi and OkCOin maintain their positions. However, it may be explained by extension of their business to foreign markets of jurisdictions, which are loyal to activities concerning cryptocurrency. These jurisdictions include Hong Kong, Singapore, USA etc. Thus, daily turnover of the Huobi exceeds 1 billion USD.

At the present moment, the subsequent economic fate of cryptocurrencies may be influenced by the decision of the US Securities and Exchange Commission (SEC). Huge investment and increase in the bitcoin rate are expected in case of its permission to implement the exchange traded fund linked to the bitcoin.