The Korean Institute of Finance warns against cryptocurrency ETFs, highlighting their potential to destabilize the local economy. What are his arguments?
Cryptocurrencies would be bad for South Korea's economic stability
Since the end of 2023, spot ETFs based on cryptocurrencies have been in the news a lot. Initially, it was spot Bitcoin ETFs that shook global finance. Approved in January 2024 by the United States Securities and Exchange Commission (SEC), these products have already recorded more than $300 billion in volumes.
Then, attention turned to Ethereum, the 2nd cryptocurrency on the market. While debate raged over the classification of Ether (ETH) as a security or commodity, Ethereum spot ETFs were finally approved last month and are expected to launch later this month. from July 2024.
Finally, some rumors concerning spot ETFs on other cryptocurrencies are circulating on the web, but nothing very concrete has yet been confirmed.
📈 To find out more about what ETFs are, discover our detailed article
The Korean Institute of Finance recently released a report on cryptocurrency-based ETFs, arguing that these new financial products could weaken the financial stability of the country.
The report states:
“Allowing such products may lead to side effects such as increased inefficiency in resource allocation, increased exposure to cryptocurrency risks in the financial market, and weakened financial stability”
In short, the report highlights 4 main risks associated with cryptocurrencies. First of all, they could divert funds from the South Korean economy into digital assets.
Secondly, cryptocurrencies expose investors to highly volatile assetswhich could create chain losses.
Third, the introduction of financial products based on cryptocurrencies could reduce public confidence in the financial system.
Finally, investors would be exposed to significant losses due to weak regulation and limited knowledge of the risks associated with cryptocurrencies.
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Are Bitcoin and Cryptocurrencies Really Bad for the Economy?
Although the arguments put forward by the Institute of Korean Finance make sense, we can nevertheless nuance them to better understand the dangers.
First, investors could actually choose to allocate their funds to Bitcoin rather than investing in a local company. However, this investment could generate profits which would then be reinvested in the economy, or even be spent in BTC if the investment was made in cash rather than through ETFs.
Second, the risk of volatility affects all investors in the cryptocurrency market. It is nevertheless important to remember that in the long term, the price of BTC is constantly increasing and the currency is gradually losing its volatilityas demonstrated by a recent study by Kaiko Research.
📰 Also read in the news – Ethereum spot ETF: the war is on – What will their fees be?
Then, the loss of confidence in financial institutions is a real risk for the monetary system. Many times in history, loss of confidence in a currency has created hyperinflation. To this argument we could respond that it was precisely the loss of confidence in the monetary system that led to the creation of Bitcoin.
Finally, the risks linked to poor regulation are still very present today. It is for this reason thatit is always safer to take custody of your cryptocurrencies by withdrawing them from centralized exchange platforms.
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First attracted by the lure of gain, I am now trapped deep into the rabbit hole. With no way out, I just have to share my knowledge and convey the passion I have for the world of blockchain. I am also the creator of Adopt a Block, an educational site dedicated to Bitcoin.
Marius Farashi Tasooji
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