During the last 24 hours, the total capitalization of the cryptocurrency market has decreased by $17 billion, from $390 to $372 billion, the price of bitcoin has fallen below $8250, and the cost of ether, the Ethereum network cryptocurrency, has fallen to $685.
The Main Factors of the Crisis in the Cryptocurrency Market
The recent correction in the cryptocurrency market and the short-term drop in the price of bitcoin, Ethereum, and other major cryptocurrencies and tokens can be explained mainly by three main factors: Bitfinex’s tax policy, the scandal surrounding two major cryptocurrency exchanges in South Korea, UPbit and Bithumb, and the sale of a large batch of bitcoin coins by authorized Mt Gox cases.
As we reported, on may 17, Bitfinex demanded that part of the exchange’s users provide their tax IDs and social security numbers. Bitfinex is a company headquartered In the British virgin Islands, with another office in Taiwan. This offshore has no tax policy for cryptocurrency investors and its favorable regulation has attracted the attention of many large businesses in the digital currency sector such as Bitfinex and initial coin offerings (ICO).
However, pressure from the major economies and governments such as the United States, could adversely affect the British virgin Islands if the United States decides to cooperate closely with the government of this country to fight with the American investors who use Bitfinex for buying and selling cryptocurrency to avoid paying taxes.
The Bitfinex team said last week:
Thus, The government of the British virgin Islands may exchange information with the tax authorities of the client’s country of residence in accordance with the laws of The British virgin Islands, the US foreign economic accounting tax law (FACTA) and the General standards of the Organization for economic cooperation and development.
Major groups of cryptocurrency traders, including Whalepool, have publicly stated that they will stop using Bitfinex until the tax policy changes and encourage others to do the same.
The exit of large investors with Bitfinex, which, as before, remains the largest cryptocurrency exchange trading bitcoin to the us dollar, was one of the main factors that caused the fall of the cryptocurrency market last week.
The South Korean cryptocurrency market is just beginning to recover from the scandals around UPbit and Bithumb, after the release of the official report of the leading audit company Yoojin, which confirmed that all funds on upbit cryptocurrency wallets correspond to the overall balance of the exchange.
The cryptocurrency market is likely to recover from the situation around Bitfinex relatively quickly, after large investors who withdrew from Bitfinex use other exchanges and OTC markets to re-introduce funds.
If South Korean investors of the cryptocurrency market will restore confidence in the local stock exchanges and the world market will bounce back after the case of Bitfinex, it is likely that cryptanalytic the market again will grow and gain momentum.