South Korean researcher Bo-mi Lee highlights crypto volatility and risks, calling for more research and regulatory measures.

A finance and economics-focused think tank in South Korea has expressed opposition to the approval of spot crypto exchange-traded funds (ETFs) in the country. Bo-mi Lee, a researcher at the Korea Institute of Finance, argued in a recent paper that the experiences with spot Bitcoin and Ether ETFs in various global jurisdictions indicate that the drawbacks outweigh the benefits.

Key Arguments Against Spot Crypto ETFs

1. Financial Stability Concerns:
Lee asserted that the introduction of spot crypto ETFs could destabilize the country's financial system. If spot ETFs are approved and digital asset prices increase, a significant influx of capital into the crypto market could occur. This scenario could lead to inefficiencies in resource allocation. Conversely, a downturn in digital asset prices could harm financial market liquidity and the financial health of companies involved.

2. Market Volatility and Understanding:
The paper highlighted the high volatility of digital assets and a general lack of comprehensive understanding of their value. Lee warned that introducing spot crypto ETFs might mislead market participants into viewing these assets as "proven" or stable investments, increasing overall market risk.

3. Regulatory Preparedness:
Lee emphasized the need for well-prepared regulatory measures to mitigate the risks associated with digital assets. Given the uncertain impact of digital assets on investors and the financial market, the researcher recommended that regulators conduct more thorough research and prepare robust regulatory frameworks before considering the approval of spot crypto ETFs.

South Korea's Regulatory Actions

South Korea's financial regulator is already tightening its rules on crypto assets to enhance user protection. Starting July 19, registered crypto exchanges in the country will be legally required to regularly evaluate the tokens listed on their platforms. These evaluations will determine whether the exchanges should continue to support or delist certain tokens. Failure to comply with these regulations could result in severe penalties, including fines and jail sentences.

Related Developments

In the broader context, South Korea is also looking to upgrade its status regarding crypto crime units, reflecting an increasing focus on regulating and monitoring the digital asset space. This regulatory shift aims to safeguard investors and ensure the stability of the financial markets amid the growing influence of cryptocurrencies.

Conclusion

The Korea Institute of Finance's cautionary stance on spot crypto ETFs underscores the ongoing debate about the integration of digital assets into traditional financial systems. As South Korea continues to develop its regulatory framework, the balance between fostering innovation and ensuring financial stability remains a critical consideration.