The Korea Institute of Finance’s latest report on spot crypto ETFs states that these funds may weaken the local economy. Currently, South Korean regulators prevent local issuers from launching crypto ETFs.
South Korea’s financial research institution reported that introducing spot crypto exchange-traded funds (ETFs) will likely cause more problems than benefits for the country’s economy.
South Korean Financial Research Institution Warns Against Spot Crypto ETFs
The Korea Institute of Finance (KIF) warned in a Sunday report that allowing spot crypto exchange-traded funds (ETFs) could have negative side effects. They cited concerns such as increased inefficiency in resource allocation, greater exposure to crypto-related risks in the financial market, and weakened financial stability.
The think tank explained that crypto ETFs might divert substantial cash flows away from the local financial market to the crypto market, reducing the investment available for local industries. KIF added that this shift could make the local financial market more vulnerable to crises in the crypto sector, potentially increasing investor distrust in both the market and its regulators.
“At this point, we believe that the introduction will do more harm than good,” the report stated. However, the think tank also acknowledged that crypto ETFs could become a valuable store of value if the underlying cryptocurrencies evolve into more defined and unique financial assets.
Debate Over Spot Crypto ETFs in South Korea
Currently, South Korean regulators prohibit the issuance and trading of spot crypto exchange-traded funds (ETFs), arguing that cryptocurrencies like bitcoin are not suitable as underlying assets for such investment vehicles.
However, South Korea’s ruling Democratic Party, aligned with the left-wing, has recently proposed allowing spot crypto ETFs locally, fulfilling a campaign promise from the last general election.
In contrast, the United States pioneered spot crypto ETFs in January, with 11 spot bitcoin funds accumulating a total of $55.55 billion in net assets, surpassing initial expectations. Hong Kong followed suit in April by introducing spot ETFs for bitcoin and ether, while Australia’s largest stock exchange, ASX, listed its first spot bitcoin ETF just last week.
Important: Please note that this article is only meant to provide information and should not be taken as legal, tax, investment, financial, or any other type of advice.
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