South Korea to impose new curbs on cryptocurrency trading
Comment of the Day

December 28 2017

Commentary by Eoin Treacy

South Korea to impose new curbs on cryptocurrency trading

This article from Reuters may be of interest to subscribers. Here is a section:

“The government had warned several times that virtual coins cannot play a role as actual currency and could result in high losses due to excessive volatility,” the government said in a statement.

It noted that trading prices of most virtual currencies were much higher on South Korean exchanges than they were on exchanges in other countries, although it did not provide specific examples.

The steps will include a ban on opening anonymous cryptocurrency accounts and new legislation to allow regulators to close virtual coin exchanges if needed, a measure recommended by the justice ministry, the statement said.

South Korea had previously announced its plan to tax capital gains from cryptocurrency trading to tackle what it sees as the risk of excessive speculation.

Eoin Treacy's view

South Korea, Japan and China have been among the hottest markets for Bitcoin. For a bubble to continue to expand it relies on the ability of progressively more people to participate in the advance. Anything that inhibits the flow of capital to feed the bubble is a potentially damaging headwind.

Bitcoin’s acceleration had its first major inconsistency on December 8th with a large intraday reaction. It subsequently lost momentum and posted a failed upside break on the 19th where the dynamic of the failure was larger than the dynamic of the breakout. It subsequently experienced a massive reaction against the prevailing trend.

Following such a large Type-2 trend ending characteristic it is not unusual to see a period of ranging below the peak. This is what David refers to as period of right hand extension while it might also be considered a first step below the top. It forms because some investors who have been waiting for a pullback use the opportunity to initiate positions. Meanwhile others will have been chastened by the speed of the decline and will either stop buying or begin to liquidate positions.

With the prospect of capital gains taxes and tighter regulation, the chances of bitcoin repeating its 2017 performance in 2018 are looking unlikely while the potential for a more serious reversal is rising as a first step below the top forms.

At The Chart Seminar I am often asked what markets Behavioural Technical Analysis works best in. The answer is simple. It works best in markets where the biggest imbalances between supply and demand exist. I have been happy to use bitcoin as a teaching example on the way up because it exemplified everything that is symptomatic of a bubble acceleration in real time, however there is now increasing evidence of top formation completion which means, rather than buying more, people should really start thinking about an exit strategy.  

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