Spot crypto ETFs could potentially cause damage to the local economy warns the Korea Institute of Finance

The Korea Institute of Finance has raised concerns about the potential risks posed by Bitcoin ETFs to the country’s economy. A report written by researcher Bo-mi Lee highlighted that while spot crypto ETFs can provide institutional security for investors and profits for financial companies, the drawbacks outweigh the benefits. The report took into account recent approvals in the US, Hong Kong, and the UK, and concluded that the introduction of these products could lead to financial instability. It noted that spot crypto ETFs would require issuers to hold and actively trade volatile virtual assets, which could result in financial instability if the prices of these assets drop. Additionally, the report emphasized that substantial capital would be diverted from traditional investment sectors that generate future cash flows, leading to an inefficient allocation of resources and hindering economic growth. Lee also argued that there is a lack of understanding regarding the true value and risks of crypto assets, and that introducing spot crypto ETFs would further exacerbate market risks and financial instability. The report suggested that crypto assets should demonstrate unique payoffs that traditional assets cannot replicate in order to justify their inclusion in regulated financial products. It also stated that spot crypto ETFs would not significantly improve investment accessibility, as investors can already access these assets through exchanges. Lee called for the implementation of proper regulatory measures to mitigate the risks associated with crypto ETFs before their introduction, while acknowledging the challenges involved due to the rapid expansion of virtual assets and related products. The report concluded that it is currently difficult to predict the impact of virtual assets on investors and financial markets. South Korea has recently tightened its oversight of the crypto sector, with financial regulators now requiring crypto exchanges to evaluate the cryptocurrencies listed on their platforms.