This is coming as the nation’s police and tax authorities raided local exchanges on alleged tax evasion.
The clampdown in South Korea, a crucial source of global demand for cryptocurrency, came as policy makers around the world struggled to regulate an asset whose value has skyrocketed over the last year.
Justice Minister Park Sang-ki said the government was preparing a bill to ban trading of the viral currency on domestic exchanges.
“There are great concerns regarding virtual currencies and justice ministry is basically preparing a bill to ban cryptocurrency trading through exchanges,” Park said.
A press official said the proposed ban on cryptocurrency trading was announced after enough discussion with other government agencies including the nation’s finance ministry and financial regulators.
Once a bill is drafted, legislation for an outright ban of virtual coin trading will require a majority vote of the total 297 members of the National Assembly, a process that could take months or even years.
The government’s tough stance triggered a selloff of the cyrptocurrency on both local and offshore exchanges.
The local price of bitcoin plunged as much as 21 per cent in midday trade to 18.3 million won ($17,064.53) after the minister’s comments. It still trades at around a 30 per cent premium compared to other countries.
Bitcoin was down more than 10 per cent on the Luxembourg-based Bitstamp at $13,199, after earlier dropping as low as $13,120.