The current state of crypto in two national snapshots

14 May, 2019

With so much talk about bull and bear markets, predictions of the future, and the many philosophical debates over the direction of one particular cryptocurrency or another, it is easy to lose sight of the greater cryptocurrency market worldwide. The good news is that things are generally going well. Most coins have stabilized and are on their way back following a brutal cryptocurrency winter. Meanwhile, more national governments are starting to look at crypto favorably.

This post will take a look at the current state of cryptocurrency as encapsulated in two national snapshots. One snapshot is that of South Korea while the other is Chile. Needless to say that while the environment could be better in both countries, things are looking pretty good for crypto right now.

1. South Korea: People are buying more crypto

When you and I talk about purchasing crypto here in the West, we are talking about something that may not necessarily be life-altering. It is nothing for us to purchase litecoins or bitcoins to play Mega Moolah at an online casino. But in some other places around the world, an investment in crypto is an investment in an entirely different economic system. Such is the case in South Korea.

There are people in South Korea who purchase digital coins in order to support relatives living in the North. They can transfer the coins electronically and thereby send money to desperate loved ones who can convert those coins or use them to transact business with other people in their local regions.

Given the environment between North and South Korea, it is no surprise that South Koreans would be interesting in purchasing digital coins. Not only is that the case, but they are buying coins faster and in larger volumes than ever before. According to a recent report from Cointelegraph, South Koreans are currently spending more fiat to buy more crypto than they ever have before.

Purchases and volumes are up

Cointelegraph's numbers come from a December 2018 survey conducted by the Korea Financial Investors Protection Foundation. The survey revealed that roughly 7.4% of South Korea's adult population owns cryptocurrency. That number is up 1% from the year before.

The survey also revealed that, among those who already own crypto, many are continuing to add to their holdings by purchasing more coins with fiat. The average coin owner now holds the equivalent of USD $6,000 in cryptocurrency. That number is up 64% from the year before.

Finally, the survey showed that buyers in their 50s and older were the most prolific in 2018. Buyers between 30 and 40 years old make up the next largest group of crypto investors.

Cointelegraph speculates that Bitcoin's current rise above the $5,000 mark has re-energized South Korean buyers. There is apparently a phenomenon observed in South Korea where people already used to paying a premium price for bitcoins are willing to buy more when the value of the coins increases against the U.S. dollar.

Problems with South Korean exchanges

It's pretty clear that Bitcoin and many of its larger rivals are doing very well in South Korea. People are not afraid to purchase coins and invest quite a bit of fiat to do so. They are also willing to buy more as prices increase. If there is one downside to the market in South Korea, it is found in the exchanges that power it.

Cointelegraph reports that at least one prominent South Korean exchange shut down operations earlier this month. Another exchange is still dealing with the aftereffects of a March 2019 hack that resulted in losses of some $18 million.

Unfortunately, exchanges are the weak link in the cryptocurrency universe. Because most are centralized, they run counter to the decentralized philosophy of cryptocurrency in general. They are vulnerable to hacks, pump and dump, and other problems that can affect both customers and the exchanges themselves.

2. Chile: New crypto regulations on the way

The second snapshot, taken from Chile, shows an entirely different perspective. Regulators in that country are now taking cryptocurrency seriously enough that they believe both crypto and fintech need a bit of regulation. Chile's Minister of Finance apparently submitted a bill to that effect to Congress in mid-April (2019).

In speaking about his bill while on a visit to the United States, Felipe Larraín said that the legislation would take into account business needs. He explained that regulatory efforts will accommodate different business models and offer different services to help those involved in cryptocurrency and fintech better take advantage of financial markets.

Though details of the bill have not been released, it appears to target exchanges more than anything else. Exchanges are currently unregulated in Chile, and the government looks to be nervous about how the lack of regulation might encourage criminal activity and/or hurt small-volume investors who do not have the resources to invest on the same scale as commercial investors.

Managing cryptocurrency risks

Larraín specifically mentioned a couple of problems when discussing his legislation in the U.S. First is the risk of money-laundering. As you may already know, cryptocurrency is widely criticized around the world for its ability to help criminals launder the proceeds of their activity. This is done largely through unregulated exchanges that don't have to report any of their activities to government.

The second area of concern is that of cryptocurrency financing terrorist organizations. In light of how unregulated exchanges operate, this is a legitimate concern. However, it is not clear how regulation would stop this sort of activity. Terrorist organizations seem to do fine whether they are funding their operations through crypto or fiat.

One last area of concern, as expressed by the Central Bank of Chile, is that cryptocurrencies are not a substitute for fiat. While that is true, it is only because cryptocurrency is not considered legal tender. It is still a substitute for fiat in terms of being an electronic payment system.

As long as both parties involved in a crypto transaction can convert freely to and from fiat, it really doesn't matter that cryptocurrency is not legal tender. Crypto facilitates a transaction between two parties without the need for central-bank interference. Those parties are free to convert their digital coins into fiat any time they like.

On the opposite side of the regulatory coin, the courts in Chile have sided with cryptocurrency exchanges in their battle against banks wishing to close their accounts. One of the more recent rulings from Chile's anti-monopoly court forces banks to continue providing services to exchanges, at least for now.

It is no longer a fad

We can see from both national snapshots that cryptocurrency in South Korea and Chile is having a big enough impact on the daily lives of regular people that both media outlets and government regulators are taking notice. If nothing else is gleaned from these two snapshots, that much should be obvious.

In the case of South Korea, it is absolutely astonishing that more than 7% of the adult population owns cryptocurrency. Even more astonishing is the fact that buyers over the age of 50 account for the largest single group acquiring the highest volumes of digital coins. The data show something particularly important going on the crypto universe: people are warming up to platforms like Bitcoin and Bitcoin Cash as they recognize their convenience is payment systems.

An implied take-away from South Korea is that older people are purchasing their digital coins in order to transact cross-border business. Whether that means sending money to relatives living in the North or purchasing goods and services from other countries, crypto has found a place among older South Koreans.

In Chile's case, there is enough cryptocurrency activity now ongoing that government regulators are concerned about addressing crime and protecting investors simultaneously. That clearly indicates that the Chilean government recognizes crypto is no longer just a fad there. They feel the need to get involved because they know that crypto is here to stay.

Investment or monetary system

When we look at South Korea and Chile from opposite positions, the two snapshots offer a microcosm of the larger crypto market and its competing interests. On the one hand, Bitcoin was originally developed to be an alternative monetary system. It was designed to be a way to pay for things without having to transfer fiat. That is now playing out in South Korea.

On the other hand, the emerging regulatory environment in Chile accounts for cryptocurrency and its value as an asset. Regulators are focusing their attention on exchanges and owners transferring large volumes of crypto for whatever reason. Through regulation aimed at larger volume investors, regulators hope to protect small-time coin owners as well.

In the end, Bitcoin and its many competitors are both monetary systems and investments. You can use Bitcoin as a monetary system just by purchasing coins to support your Mega Moolah play. But you could also invest thousands in your favorite coin in hopes of turning a tidy profit when/if the price goes up. Both work and both are completely valid. The current state of cryptocurrency supports both strategies equally well. It is up to you to decide how you want to play them.