Bitcoin spot exchange-traded funds (ETFs) are gaining traction worldwide, but South Korea is holding back, as reported by local media News1. A recent analysis sheds light on the possible advantages and pitfalls of introducing these financial products to the Korean market.
The Korea Institute of Finance researcher Bo-mi Lee released a report, “Consideration on Approval of Overseas Virtual Asset Spot ETFs.” The analysis delves into the approvals of Bitcoin and Ethereum spot ETFs in nations like the United States, Hong Kong, and the United Kingdom.
While major financial markets are warming up to crypto-based ETFs, South Korea maintains a cautious stance. The country currently allows the trading of Bitcoin futures ETFs but bars the issuance and trading of spot ETFs. Korean financial authorities argue that these products clash with current policies and could breach capital market laws.
Risks identified in crypto ETFs
Lee recognizes the possible advantages, such as enhanced investor safety. While the major concern lies in the potential threat to financial stability. Lee cautions that a rapid rise in values could trigger notable capital movements, disrupting the allocation of resources in traditional markets. Conversely, a sudden price collapse could harm market liquidity and financial institutions.
Lee cautioned about the potential consequences of integrating virtual assets into the institutional system amid a lack of understanding about their value and high price volatility. This move could lead to a misleading perception of their proven asset status. Additionally, Lee said, “There is a high possibility that the risk will expand.”
The analysis suggests that Korea’s primary focus should be on establishing comprehensive regulatory frameworks before delving into the potential incorporation of crypto ETFs. There is a need for in-depth exploration to manage risks to protect investors.
This cautious strategy starkly contrasts recent actions taken by the U.S. SEC, which greenlit Bitcoin spot ETFs in January despite years of opposition. Nevertheless, the rising embrace of crypto-based products in major markets might exert pressure on Korean authorities to reconsider their position down the line.
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