Spot ETF Has To Wait In South Korea As KIF Warns of Countries Economic Risks

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The Korea Institute of Finance (KIF) has raised concerns about the possible introduction of spot exchange-traded funds (ETFs) for Bitcoin and Ethereum in South Korea, suggesting that these types of funds will likely result in more troubles than benefits for the country’s economy.

However, this comes after the approvals of Bitcoin and Ethereum ETFs in overseas countries such as the United States, Australia, and Hong Kong, highlighting a similar approach to cryptocurrency regulation.

Risks of Spot Crypto ETFs

In a report published on June 24, 2024, the KIF warned that the launch of spot ETFs for Bitcoin and Ethereum could pose more challenges than benefits for South Korea’s economy. 

One of the main concerns outlined in the report is the potential inefficiency in resource allocation that spot crypto ETFs could bring. It warned that spot crypto ETFs might draw significant cash flow away from traditional financial markets and local industries, risking essential investments necessary for economic growth and stability.

Furthermore, the report highlighted the increased risks associated with the volatility of the cryptocurrency sector. Spot crypto ETFs could make South Korea’s financial market more vulnerable to crises and reduce investor trust in market integrity and regulatory oversight.

Researcher’s Concerns

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

Political Environment Favoring ETFs

KIF acknowledges that crypto ETFs might be more beneficial in the future if cryptocurrencies become more stable and clearly defined. However, for now, it remains skeptical about their immediate positive impact on the economy

Interestingly, there is some political support for spot crypto ETFs in South Korea. The ruling Democratic Party recently proposed introducing these ETFs as part of their campaign promises in the last general elections.