This Thursday South Korea’s Justice Minister said that a bill was being prepared to ban cryptocurrency trading, sending a wave of panic across the virtual currency market, which depends on South Korea for much of the demand.

Over the past year cryptocurrencies have gained tremendous traction, and bitcoin futures are now traded on two major exchanges in the United States. In South Korea, however, alleged tax evasion has led to police and tax authority raids on major exchanges dealing in bitcoin and other cryptocurrencies.

At least two exchanges, Coinone and Bithumb, were raided this week on suspicion of tax evasion.

The finance ministry is in on it too, and the raids essentially follow the ministry’s obviously failed attempts at figuring out how to tax the cryptocurrency market in South Korea, which has now burgeoned to become as big as Kosdaq, the region’s small cap index.

The real problem seems to be the herd mentality exhibited by investors after the bitcoin surge last year that took coin values up by almost 1,500 percent. It’s not a problem local to South Korea, of course, nor is the tax evasion issue.

However, the move by the ministries to block cryptocurrency trading altogether is being seen as a short-sighted reaction to developments of the last year. According to a Coinone official, “Local police also have been investigating our company since last year, they think what we do is gambling.”

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