The nation’s financial regulator on Friday rejected the proposed introduction of U.S. spot bitcoin exchange-traded funds (ETFs) in the domestic market. The Financial Services Commission (FSC) said in a statement, “Any trading of the overseas-listed cryptocurrency ETFs may infringe upon the Capital Markets Act on related assets.” An FSC official added that it would be difficult for Korea to follow suit as the two nations have different legal systems.

The FSC’s decision was prompted by the approval of bitcoin-linked ETFs by the U.S. Securities and Exchange Commission. This marks the inclusion of virtual assets in the current financial markets, implying that, despite the stance of the Seoul government, Korea will have to increasingly prepare for this development. The recent U.S. decision will likely prompt global investors, previously skeptical of virtual assets, to pour a maximum of $10 billion into the cryptocurrency markets. From a mid- and long-term perspective, the total investment will likely amount to $
300 billion, equivalent to 3 percent of all global ETFs.

There are growing expectations that the approval of bitcoin ETFs will open up new investment opportunities and foster growth in the asset markets. This is based on past instances where the introduction of gold-linked ETFs activated the gold market. On the other hand, concerns are also flaring up over the potential overheating of the virtual asset markets due to the recent U.S. decision. More analysts foresee the price of one bitcoin will reach even 200 million won ($152,000), instigated by the coming half-life period of bitcoin. It is risky to make a “blind investment” judging that the cryptocurrency has entered a bullish market.

An increasing number of governments are rushing to institutionalize virtual assets into the official financial markets. For starters, the European Union passed a bill named Markets in Crypto Assets (MiCA) for the first time in the world last year. The G20 Summit held in New Delhi, India, in September of last year adopted a jo
int statement covering policies and regulations regarding virtual assets.

Underlying the global move to bring virtual assets into the establishment are growing expectations of a revolution in the pertinent blockchain technology. Despite this, Korea has regrettably lagged in its efforts to endorse virtual assets, largely regarding them as speculative investments. Against this backdrop, the domestic market has already been a “garbage gambling site” replete with altcoins – or “kimchi coins” – issued outside the markets with the initial coin offerings (ICO) having been completely blocked.

In June last year, the National Assembly passed a bill designed to protect investors of virtual assets. Yet it was incomplete and focused on punishing potential violators. The envisioned approval of bitcoin ETFs appears unlikely for the time being. This raises concerns about the potential shift of domestic investments to the U.S. market, posing a challenge to the local capital market and impeding progress in the essential fiel
d of blockchain technology. It is high time for Seoul to speed up endeavors to prepare institutional infrastructure, such as basic laws regarding digital asset management and investments.

China has been intensifying efforts to boost relevant industries with the goal of regulating the production, possession, and trading of virtual assets and issuance of digital currencies, following the lead of the U.S., Japan and the European Union. Given this, it is fortunate to see Bank of Korea Governor Rhee Chang-yong saying, “I believe bitcoin has firmly taken root as an investment asset,” during a press conference on Thursday. “It is time for us to test the intrinsic value and safety of the assets,” he added.

Efforts should be made to both protect investors and nurture future industries. They cannot be separated. Steps should be taken to prevent the possible exploitation of cryptocurrencies for criminal purposes. The government should take proactive measures by implementing laws and establishing institutions to effect
ively support the seamless adoption and integration of blockchain technology.

Source: Yonhap News Agency