New Findings Warn Against South Korean Crypto ETFs: The Economic Threat Is Growing

South Korea appears to be at a crossroads, grappling with the potential implications of introducing crypto exchange-traded funds (ETFs) into its financial system.

The Korea Institute of Finance (KIF) has recently released a report that raises serious concerns about these financial products. What are they saying about ETFs?

Crypto ETFs Can Cause South Korean Side Effects

According to the report, while spot crypto ETFs are gaining momentum around the world, their integration into the South Korean economy may cause more harm than good.

The main concern centers on the potential for these funds to siphon capital from local financial markets into the faltering digital currency industry, potentially eroding investment in key local industries. The KIF noted:

It allows [ETF] products can lead to undesirable consequences such as increased inefficiencies in resource allocation, increased exposure to crypto-related risks in the financial market, and reduced financial stability.

The institute’s report also emphasizes the risk of increased market vulnerability, which could escalate into a crisis within the digital financial sector, leading to wider economic consequences and eroding investor confidence in both markets and regulatory bodies.

However, despite the harsh words, KIF admits that digital currencies can turn into an effective store of value if they mature into “defined and regulated” financial assets, thus justifying the future launch of these ETFs.

Where Does Crypto Stand in the World?

In related developments, South Korea has taken concrete steps to strengthen its oversight of the digital currency market. The enactment of the country’s first crypto-specific consumer protection law on July 19 marked an important step in “investor protection.”

After this, the Financial Intelligence Unit (FIU) reported a slight decrease in the number of digital currencies listed on domestic exchanges, from more than 600 in the first half of 2023 to a slightly reduced count in the last quarter.

This regulation mandates that exchanges conduct rigorous reviews of their listed cryptocurrencies every six months, with additional “maintenance reviews” every three months, ensuring compliance with financial regulations and improving market stability.

In addition, the Financial Supervisory Service (FSS) has ordered all registered exchanges to ensure that their listed digital currencies meet strict regulatory standards.

Exchanges such as Upbit, Bithumb, Coinone, and Korbit should seriously evaluate the functionality of supporting each digital currency asset on their platforms.

In addition to tightening cryptocurrency regulations, South Korean authorities have expanded their oversight to include non-fungible tokens (NFTs), classifying them and digital currencies as physical assets.

The featured image was created with DALL-E, a Chart from TradingView