The Bitcoin has become a major
buzzword around the world.
When it first became into existence in January 2009, its price
was nearly at zero. In February 2010, the
value of one Bitcoin became one dollar as
it took parity with the US dollar. After
much fluctuation, it shot up to $1,290 per
unit on Mar. 2, 2017. Since then, it has
been rising rapidly, reaching $6180 on
Oct. 21, 2017. Over the January 2009 to
October 2017 period, the price of the
Bitcoin has increased by more than 6,000
In this situation many people may be tempted to invest in the Bitcoin but foreign investors cannot come to Korea for Bitcoin investment. According to Korea’s Foreign Investment Promotion Act, the means of payment for investment in Korea are confined to foreign currencies, capital goods, industrial property rights and real estate, among others.
It is useful to distinguish among virtual currency, digital currency and cryptocurrency. Virtual currency is a type of unregulated, digital money which is issued and usually controlled by its creators and accepted among the members of a specific virtual community. Digital currency is a form of virtual currency that is electronically created and stored. Some types of digital currencies are
but not all of them are. A cryptocurrency
is a subset of digital currencies that uses
cryptography for security so that it is
extremely difficult to counterfeit.
Bitcoin is a cryptocurrency—a digital asset designed to work as a medium of exchange that uses cryptography to control its creation and management, rather than relying on central authorities. Besides Bitcoin, there are other cryptocurrencies and their market capitalization shares are 20 percent for Ethereum, 7.5 percent for Ripple and 2.4 percent for Litecoin. Among these, the Bitcoin takes the lion’s share with 40 percent.
Regarding the skyrocketing price of Bitcoins, the central authorities are concerned about an increasing probability of speculative bubbles, thereby putting a lot of ordinary investors in a deep trouble. Many commercial banks like UBS say that a sharp rise in cryptocurrency valuations will lead to a speculative bubble and cryptocurrencies are unlikely to become mainstream currency.
By contrast, speculators are very interested in capturing high profits. There are key differences between investment and speculation. Investors expect profit from the change in the value of the asset, whereas speculators expect profit from the change in the price due to changes in demand and supply. If the speculative demand falls sharply, the price bubble bursts.
Investors tend to keep the asset for a longer time period, whereas speculators hold assets for a short term. An investor expects a modest rate of return, whereas a speculator expects higher profits. Becoming an investor or speculator depends on the investor’s attitude toward risk. There are three types of investors—risk loving, risk averting and risk neutral. So an investor with a risk-loving attitude is likely to be a speculator.
Bitcoin investment will exert different
influences on the individual investor and
on the overall economy. The individual
investor aims at capturing the maximum
profit from the market. But the central
authorities and commercial banks worry
about a financial crisis occurring when
the cryptocurrency system suddenly collapses.
From the standpoint of the monetary authorities, however, Bitcoin or other cryptocurrency is a disturbing factor in the maintenance of a stable economy. If a large proportion of people engage in the speculative transaction of the Bitcoin and become victims of the bubble, the entire economy will be jeopardized.
In connection with the means of payment for investment in Korea, foreign investors cannot use the Bitcoin or other cryptocurrencies. Due to reasons stated above, it will take a while before the foreigners will be allowed to use the Bitcoin as a means of payment for their foreign investment.
The Foreign Investment Ombudsman and his grievance resolution body collect and analyze information concerning problems facing foreign firms, request cooperation from relevant government agencies, propose new policies investment promotion system and carry out other necessary tasks to assist foreign-invested companies in resolving their grievances.