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New Findings Warn Against Cryptocurrency ETFs in South Korea: Economic Threat Looms
New Findings Warn Against Cryptocurrency ETFs in South Korea
It appears that South Korea has found itself at a crossroads, having to deal with the potential impacts of introducing crypto exchange-traded funds (ETFs) into its financial ecosystem.
The Korea Institute of Finance (KIF) recently released a relationship express significant concerns about these financial products. What did they say about ETFs?
Cryptocurrency ETFs Could Create Side Effects for South Korea
According to the report, while spot cryptocurrency ETFs are gaining traction internationally, their integration into the The economy of South Korea could lead to negative rather than beneficial effects.
Key concerns include the potential for these funds to divert significant capital from local financial markets to the volatile digital currency sector, potentially undermining investment in critical local industries. KIF especially noted:
Allowing [ETF] products can lead to side effects such as increased inefficiency in resource allocation, increased exposure to cryptocurrency-related risks in the financial market, and a weakening of financial stability
The institute’s report further highlights the risk of increased market vulnerability, which could escalate into a crisis in the digital currency sector, leading to broader economic repercussions and eroding investor confidence in both the market and regulatory frameworks.
However, despite the gloomy observations, the KIF admits that digital currencies could evolve into a viable store of value if they mature into more “defined and regulated” financial assets, thus potentially justifying the future introduction of these ETFs.
Where are cryptocurrencies located in the country?
In related developments, South Korea has taken definitive measures strengthen its supervision of the digital currency market. The entry into force of the nation’s first cryptocurrency-specific user protection law on July 19 marked a significant step toward “investor protection.”
Subsequently the Financial Intelligence Unit (FIU) reported a slight decline in the number of digital currencies listed on local stock exchanges, from over 600 in the first half of 2023 to a slightly reduced number in the second half.
This regulation requires exchanges to 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.
Furthermore, the Financial Supervisory Service (FSS) has ordered all registered exchanges to verify whether their listed digital currencies meet rigorous regulatory standards.
Trade like UpbitBithumb, Coinone and Korbit need to critically evaluate the feasibility of supporting each digital currency asset on their platforms.
In addition to tightening cryptocurrency regulations, South Korean authorities have expanded them oversight to include non-fungible tokens (NFTs)classifying them together with digital currency as virtual assets.
Featured image created with DALL-E, chart from TradingView