The Korea Institute of Finance, a South Korean think tank focused on finance and economics, has issued a warning against the approval of spot cryptocurrency exchange-traded funds (ETFs) in the country.
According to local media, one of the institute’s top researchers, Bo-mi Lee, argued in a recent paper that, based on global experiences, the risks and potential losses associated with spot Bitcoin and Ether ETFs outweigh their benefits.
Lee’s paper suggested that introducing spot crypto ETFs in South Korea could threaten financial stability. It warns that approval of these ETFs, coupled with rising digital asset prices, might lead to a significant influx of capital into the crypto market. This could result in inefficient resource allocation and exacerbate liquidity issues in financial markets. Additionally, companies’ financial health might suffer during crypto price declines.
Lee emphasizes the need for more comprehensive research into the potential impacts of spot crypto ETFs, arguing that the current understanding is insufficient to justify their introduction. The researcher points out digital assets’ high volatility and uncertain value, suggesting that incorporating them into institutional systems could mislead market participants into viewing them as “proven assets.”
Lee’s paper concludes by calling for stringent regulatory measures and sufficient safeguards to protect investors, given the growing size and complexity of virtual assets. Lee stresses that without well-prepared regulatory measures, the risks associated with virtual asset-based ETFs could escalate, potentially impacting investors and the broader financial market.
This caution comes as South Korea’s financial regulator tightens rules on crypto assets. Starting July 19, registered crypto exchanges must evaluate the tokens listed on their platforms, potentially leading to delistings among over 600 crypto assets under review.
Meanwhile, the regulators are also facing increasing pressure to approve crypto ETFs following the U.S. Securities and Exchange Commission’s (SEC) approval of Bitcoin and Ethereum ETFs. Some experts have even predicted that the U.S. SEC’s decision might prompt the Financial Services Commission (FSC) to reconsider its initial reluctance.
The ruling People Power Party (PPP) has also expressed interest in exploring the legalization of spot Bitcoin ETFs and establishing a “Digital Asset Promotion Committee” for sector regulation.
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