Financial stability at risk
South Korea’s financial research body, the Korea Institute of Finance (KIF), has issued a serious warning over the potential risks of introducing spot cryptocurrency exchange-traded funds (ETFs) in the country. According to its latest report, the potential disadvantages of such financial products may outweigh the benefits to the South Korean economy.
Inefficient allocation of resources also creates financial instability
KIF’s report published on Sunday highlighted several issues raised by approving a spot cryptocurrency ETF. The think tank stressed that these products could lead to inefficient allocation of resources. Additionally, exposure to cryptocurrency market volatility increases significantly, which could weaken the stability of the overall financial system.
If all the money goes to gambling, domestic industrial investment will be reduced
One of the key points raised by KIF is the potential transfer of capital from local industry to the cryptocurrency market.
Cryptocurrency ETFs could attract large amounts of cash flow away from traditional financial markets, leading to less investment in domestic industries. This shift could make the local financial system more vulnerable to a crisis in cryptocurrency volatility, further eroding investor confidence in markets and regulatory frameworks.
South Korea’s regulatory stance: Cryptocurrency ETFs cannot be issued or traded
Currently, South Korean regulators do not allow the issuance or trading of spot cryptocurrency ETFs. The main argument against such products is that cryptocurrencies such as Bitcoin do not meet the asset standards as such investment vehicles.
In Asia, Japan and Taiwan do not allow Chinese people to issue or trade cryptocurrency ETFs. Singapore allows trading of cryptocurrency ETFs, but only for professional investors. Hong Kong is open to issuance and trading, which once attracted international attention. However, due to restrictions on the participation of mainland Chinese residents, the trading volume is not as optimistic as before.
(Stubborn Financial Supervisory Commission? The Japanese Financial Services Agency also does not allow Chinese people to trade Bitcoin ETFs and prohibits double delegation)
(Taiwan prohibits the use of multiple orders to buy securities related to virtual currencies, and Bitcoin spot futures ETFs are all regulated)
(Hong Kong ETF has accumulated 300 million magnesium, and the community is still looking forward to opening up mainland China for purchase and trading, which is 268 times different from the United States)
Global Cryptocurrency ETF Trends
Despite South Korea's cautious approach, other countries are moving forward with the launch of spot cryptocurrency ETFs. The United States launched its first spot cryptocurrency ETFs in January, and 11 Bitcoin spot funds now collectively hold more than $52 billion in net assets, exceeding initial expectations. Similarly, Hong Kong launched spot ETFs for Bitcoin and Ethereum in April, while ASX, Australia’s largest stock exchange, listed its first Bitcoin spot ETF last week.
(Net inflow of 1 Bitcoin? Australian Bitcoin spot ETF "IBTC" suffered a miserable first day of listing)
Korean political factors contribute to change?
South Korea’s ruling Democratic Party recently proposed the launch of a cryptocurrency spot ETF in the local market, which was one of their campaign promises in the last general election. Despite the warnings from the financial industry, it is expected that political forces will still have the opportunity to change the current situation.
ETFs aren’t that bad
While KIF is skeptical of the immediate benefits of introducing cryptocurrency spot ETFs, the report also acknowledges that as the underlying cryptocurrencies mature and become more defined, these products could become valuable financial assets. However, the think tank currently believes that the risks far outweigh the potential rewards.
This Article Korean Financial Experts Warn Cryptocurrency Spot ETFs: Not Good! Will impact the local financial system first appeared on Chain News ABMedia.
