South Korea’s financial research institution, the Korea Institute of Finance (KIF), cautioned against introducing spot crypto exchange-traded funds (ETFs). The KIF’s latest report suggested that these products could lead to more challenges than advantages for the country’s economy.
The KIF warned that spot crypto ETFs could increase inefficiencies in resource allocation. The institution also highlighted that these ETF might heighten exposure to crypto-related risks within the financial market and weaken overall financial stability.
The think tank elaborated that crypto ETFs might divert significant cash flows from the local financial market. This shift could reduce investment in local industries, potentially making the financial market more susceptible to crises within the crypto sector, the KIF stated.
Crypto ETFs As Value Stores
KIF believes that the introduction of spot crypto ETF could ultimately be detrimental. However, the institution acknowledged that if cryptocurrencies become more defined and unique financial assets, crypto ETF might serve as valuable stores of value.
Currently, South Korean regulators prohibit the issuance or trading of spot crypto ETFs. They argue that bitcoin and other cryptocurrencies are unsuitable as underlying assets for these investment vehicles, according to the KIF.
Despite regulatory resistance, South Korea’s Democratic Party is pushing to make spot crypto ETF available. This initiative is part of the party’s campaign promises from the last general election, the KIF reported.
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