The Korea Institute of Finance, a think tank in South Korea focused on finance and economics, has issued a cautionary statement regarding the approval of spot cryptocurrency exchange-traded funds (ETFs) within the country.

As per reports from local media sources, a prominent researcher at the institute, Bo-mi Lee, presented arguments in a recent academic paper. Lee emphasized that based on global experiences, the potential risks and losses linked to spot Bitcoin and Ether ETFs surpass their advantages.

The paper authored by Lee highlighted concerns about financial stability if spot crypto ETFs were to be introduced in South Korea. It warned that greenlighting these ETFs, especially amid the surge in digital asset prices, could lead to a substantial influx of capital into the cryptocurrency market. This influx might result in inefficient utilization of resources and worsen liquidity concerns in financial markets. Furthermore, companies could face financial strain during downturns in cryptocurrency prices.

Lee stressed the necessity for more in-depth research to gauge the potential implications of spot crypto ETFs. The current understanding, as per Lee, does not adequately support the introduction of such ETFs. The researcher underscored the high volatility and uncertain value of digital assets, cautioning that integrating them into institutional frameworks might mislead market participants into perceiving them as established assets.

In conclusion, Lee's paper advocated for stringent regulatory frameworks and robust protective measures to shield investors. Lee highlighted the growing magnitude and complexity of virtual assets, emphasizing that without well-prepared regulations, the risks associated with ETFs based on virtual assets could escalate, impacting investors and the broader financial landscape.

This cautionary stance by the South Korean think tank coincides with stricter regulations on crypto assets by the country's financial authority. Starting July 19, registered crypto exchanges must assess the tokens listed on their platforms, potentially leading to the removal of over 600 crypto assets under scrutiny.

In parallel, regulators are under pressure to authorize crypto ETFs following the approval of Bitcoin and Ethereum ETFs by the U.S. Securities and Exchange Commission (SEC). Some anticipate that the U.S. SEC's decision could prompt South Korea's Financial Services Commission (FSC) to reassess its initial hesitancy.

The ruling People Power Party (PPP) has shown interest in legalizing spot Bitcoin ETFs and establishing a "Digital Asset Promotion Committee" to oversee sector regulations.