Over the past 24 hours, the valuation of the cryptocurrency market has dropped from $390 to $373 billion, by more than $17 billion. The bitcoin price dipped below $8,300 and the value of Ether, the native cryptocurrency of the Ethereum network, dropped to $690.
The recent correction of the cryptocurrency market and the short-term decline in the price of bitcoin, Ethereum, and other major cryptocurrencies and tokens can be mainly attributed to three major factors: Bitfinex taxation policy, scandal of South Korea’s two largest cryptocurrency exchanges UPbit and Bithumb, and the initial sell-off of the Mt. Gox trustee’s bitcoin funds.
As CCN reported on May 17, Bitfinex requested a portion of its users to forfeit their tax IDs and social security numbers. Bitfinex is a company that is headquartered in the British Virgin Islands, with another office in Taiwan. BVI does not have a taxation policy for cryptocurrency investors and its favorable regulation attracted many of the biggest businesses in the cryptocurrency sector such as Bitfinex and large-scale initial coin offerings (ICOs).
However, the pressure from major economies and governments like the US could have a negative impact on the British Virgin Islands if the US decides to directly engage with the government of BVI to crackdown on US-based investors using Bitfinex to buy and sell cryptocurrencies to avoid taxes.
The Bitfinex team said last week:
“The government of the BVI may then exchange information with the tax authorities of the customer’s country of residence, consistent with the British Virgin Islands law, the U.S. Foreign Account Tax Compliance Act (FACTA), and the Organization for Economic Co-operation and Development Common Reporting Standard (CRS).”
Major cryptocurrency trading groups including Whalepool publicly stated that it will stop using Bitfinex until its taxation policy changes and encouraged others to do the same.
The sell-off by large-scale investors on Bitfinex, which still remains as the biggest bitcoin-to-USD exchange, was one of the major factors that contributed to the slump of the cryptocurrency market throughout the past week.
The South Korean cryptocurrency market has only started to recover from the UPbit and Bithumb scandal as of recent, upon the release of the official audit report of leading accounting firm Yoojin that confirmed the funds of UPbit identically matched its balance sheet.
The cryptocurrency market will likely recover from the Bitfinex situation relatively soon and it is a matter of time before the large-scale investors that have withdrawn from Bitfinex utilize other exchanges and over-the-counter markets to re-enter.
If investors in the South Korean cryptocurrency market regain trust in local exchanges and the global market recovers from the Bitfinex case, it is highly likely that the cryptocurrency market rallies and regains momentum.
In the short-term, it remains uncertain whether the bitcoin price manages to stay above the $8,200 resistance level and refrains another drop below the $7,000 region or records a corrective rally back to the $8,800 to re-enter the $9,000 region. Either results are possible, based on the movement of the bitcoin price and its volume in the upcoming days.
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