South Korean Economic Think Tank Weighs in on Bitcoin ETF Approval
A recent paper by the Korea Institute of Finance researcher Lee Bo-mi has cast doubts on the potential approval of a Bitcoin or Ethereum spot ETF in South Korea, citing concerns over financial stability. Lee argued that introducing cryptoasset-linked products could have detrimental effects on the country’s economic ecosystem.
The Risks of Approving Crypto-linked Financial Products
- Introducing crypto-linked financial products could lead to a spike in crypto prices.
- This could cause a significant amount of capital to flow into the virtual asset market, increasing inefficiency in resource allocation.
- If crypto prices fall, it could impact the liquidity of financial markets and the stability of financial companies.
Lack of Understanding and High Volatility in Crypto Market
Lee highlighted the general lack of understanding about the value of cryptoassets and the high volatility of tokens. Incorporating products using these assets into the institutional system may create a misleading perception among market participants about the reliability of virtual assets.
“There is a general lack of understanding about the value of cryptoassets. Tokens are highly volatile. Incorporating products that use these as underlying assets into the [South Korean] institutional system creates the perception among market participants that virtual assets have a proven track record.”
Challenges in Reducing Risks Related to Virtual Asset-based ETFs
- There is a high possibility that associated risks with crypto spot ETFs would intensify.
- Regulators need to be well-prepared to mitigate risks before granting approval for such products.
- Even with investor protection measures, there are limitations to effectively safeguarding investors in the crypto market.
Current Stance on Crypto ETFs in South Korea
While South Korea allows recognized brokers to engage in Bitcoin futures ETFs, the issuance or brokerage of spot ETFs is still prohibited by law. Lee’s research has sparked debate among politicians, regulators, financial experts, and crypto advocates as they navigate the complex landscape of crypto regulations in the country.
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