Concerns Raised by Korea Institute of Finance on Introduction of Spot Crypto ETFs in South Korea

The Korea Institute of Finance (KIF) has raised concerns about the potential introduction of spot exchange-traded funds (ETFs) for Bitcoin and Ethereum in South Korea, warning that these funds could bring more troubles than benefits to the country’s economy. This warning comes in the wake of approvals for Bitcoin and Ethereum ETFs in countries like the United States, Australia, and Hong Kong, signaling a global trend in cryptocurrency regulation.

In a report released on June 24, 2024, the KIF highlighted several risks associated with the launch of spot crypto ETFs. One major concern is the potential inefficiency in resource allocation, as these funds could divert significant cash flow away from traditional financial markets and local industries, hindering essential investments for economic growth and stability. Additionally, the volatility of the cryptocurrency sector poses increased risks, making South Korea’s financial market more susceptible to crises and undermining investor trust in market integrity and regulatory oversight.

Bo-mi Lee, a researcher at the Korea Institute of Finance, echoed these concerns, emphasizing the need for regulators to address associated risks effectively before approving spot crypto ETFs. While South Korea currently allows recognized brokers to handle Bitcoin futures ETFs, issuing or brokering spot ETFs remains prohibited under existing laws.

Despite these warnings, there is some political support for spot crypto ETFs in South Korea. The ruling Democratic Party has proposed introducing these funds as part of their campaign promises in the last general elections. However, the KIF remains skeptical about the immediate positive impact of crypto ETFs on the economy, suggesting that they may only become more beneficial in the future if cryptocurrencies become more stable and clearly defined.