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Korea Institute of Finance Warns Crypto ETFs May Hurt Local Economy
The Korea Institute of Finance has flagged the risks that Bitcoin ETFs pose to the national economy.
According to a report Written by researcher Bo-mi Lee, although spot crypto exchange-traded funds (ETFs) can provide institutional security for investors and profits for associated financial companies, many disadvantages outweigh these advantages.
Lee’s report took into consideration the recent approvals by regulatory authorities in the United States, Hong KongAnd Great Britain. The researcher concluded that the introduction of these products can lead to financial stability.
The report notes that spot crypto ETFs would require issuers to actively hold and trade virtual assets, which are highly volatile compared to traditional alternatives. This could lead to financial instability when the prices of the underlying cryptoassets fall.
Furthermore, the researcher warned that significant capital would be shifted from traditional investment sectors that generate future cash flows. Unlike stocks and bonds, cryptoassets do not generate cash flow.
As such, it would lead to inefficient allocation of resources and divert funds from sectors that would otherwise contribute to the country’s economic growth.
Lee further argued that currently, there is a lack of understanding regarding the true value of crypto assets and the risks they pose. According to him, the introduction of spot crypto ETFs would lead market participants to perceive that these assets are verified and stable, which is not accurate.
This would further exacerbate market risks and financial instability.
The report also claims that crypto assets must produce gains that traditional assets cannot replicate to justify their inclusion in regulated financial products. Lee believes that their value as financial assets needs to be clearer if these assets are to be considered good stores of value.
Furthermore, Lee claimed that spot crypto ETFs would not do much to improve investment accessibility, as inventors can already access these assets through exchanges.
Ultimately, Lee advocated for the creation of appropriate regulatory measures to mitigate the risks associated with crypto ETFs before their introduction. However, the researcher acknowledged the challenges involved in such an endeavor, given the rapid expansion of virtual assets and the development of various related products.
“[…] It is currently difficult to predict the impact of virtual assets on investors and financial markets,” the report notes.
Although spot trading of crypto ETFs is not permitted in South Korea, a recent initiative proposed by the country’s left-wing Democratic Party plans to make US spot crypto ETFs available locally.
The warning comes as South Korea steps up its oversight of the crypto sector. The country’s financial regulators have recently commissioned that crypto exchanges evaluate the cryptocurrencies listed on the exchanges.