A prominent South Korean economic think tank has cast doubt on the feasibility of Seoul approving a Bitcoin (BTC) or Ethereum (ETH) spot exchange-traded fund (ETF).
These insights were shared in a paper by Korea Institute of Finance researcher Lee Bo-mi, as reported by News1.
Lee expressed concerns that “introducing cryptoasset-linked products” might jeopardize South Korea’s “financial stability.”
Risks of Bitcoin ETF Approval Highlighted by South Korean Think Tank
Lee suggested that approving crypto-linked financial products would likely drive up crypto prices.
This surge could result in “a significant amount of capital moving to the virtual asset market,” Lee noted. The researcher further explained that this shift would probably “increase inefficiency” in “resource allocation.” Moreover, Lee warned that if crypto prices fell, the “liquidity of financial markets and the soundness of financial companies” could be adversely affected.
Lee emphasized the need for more research on the “benefits and drawbacks” of approving cryptoasset-linked products. Although politicians have vowed to address this issue, regulators seem to prefer a more cautious approach. Nonetheless, financial and crypto advocates have urged Seoul to follow the lead of Washington and Hong Kong in approving crypto spot ETFs.
Crypto Volatility Poses Challenge for South Korean Financial Sector
Lee argued that the risks associated with crypto spot ETF approval outweigh the benefits, elaborating: The researcher noted that there is “a high possibility” that related risks would “intensify.” To mitigate risks related to virtual asset-based ETFs, Lee suggested that regulators must ensure thorough preparation before approving. Lee also pointed out that even if regulators aimed to establish the right conditions for BTC or ETH spot ETF approval, “there are limits to the effectiveness of the investor protection measures” they could implement. Currently, South Korea allows recognized brokers to handle Bitcoin futures ETFs. However, the issuance or brokerage of spot ETFs remains prohibited by law.
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