A South Korean think tank focused on finance and economics has raised concerns about the approval of spot crypto exchange-traded funds (ETFs) in the East Asian country.
Bo-mi Lee, a researcher at the Korea Institute of Finance, presented her arguments in a paper, suggesting that the results of spot Bitcoin (BTC) and Ether (ETH) ETFs in various jurisdictions around the world show that the drawbacks outweigh the advantages.
It was suggested in the paper that introducing spot crypto ETFs in the country could pose a threat to its financial stability. According to Lee, when these spot ETFs are given the green light, and the prices of digital assets increase, a significant amount of capital will flow into the crypto market.
This, Lee argued, would lead to inefficiencies in resource allocation. The researcher also pointed out that when prices drop, it would negatively impact the liquidity of the financial market as well as the health of financial companies.
Due to these reasons, Lee recommended that the country conduct further research into the potential losses and benefits of introducing spot crypto ETFs. At present, it is believed that the losses would outweigh the benefits.
Lee also mentioned the lack of understanding of digital asset value and the high volatility of these assets. The researcher argued that the introduction of such products would lead market participants to perceive them as “proven assets.”
Furthermore, Lee stated that risks would increase and that regulatory measures must be well-prepared to mitigate these risks. The impact of digital assets on investors and the financial market is still uncertain, and regulators must have adequate measures in place before introducing spot crypto ETFs.
In other related news, South Korea is looking to enhance the status of its crypto crime unit, and the country’s financial regulator is implementing stricter rules on crypto assets to safeguard users. Starting on July 19, registered crypto exchanges will be legally required to assess the tokens listed on their platforms. Those who fail to comply with the regulations will face severe penalties, including fines and jail sentences.