South Korean market researcher Bo-mi Lee has talked about the volatility and risks associated with investing in digital currencies. On this account, the analyst called for additional research and regulatory requirements. Finance and economic think tank based in South Korea have raised concerns about East Asian nations delving into digital asset spot ETFs.
Risks Associated with Crypto ETFs
The Korea Institute of Finance Research stated in a recent report that spot Bitcoin and Ethereum ETFs that are accessible across multiple national jurisdictions are subjected to risks. The researcher noticed that spot crypto ETFs in the nation may cause harm to the financial stability of a nation. The paper further stated that spot ETF approvals are akin to digital asset price hikes.
The price inclines stems from capital inflows into the digital asset market. At the same time, Lee noticed that such a scenario may lead to lack of uniformity in resource allocation. The researchers also stated that financial market liquidity and financial firm portfolios can deteriorate in the event when prices drop.
On this account, the firm has stated that governments and regulatory agencies should conduct in-depth research to assess the potential loss and benefits of spot crypto ETFs.
Lack of Education and Awareness About Digital Assets
Speaking on the subject of digital assets, the researchers from South Korea noticed that there is still a lack of understanding regarding digital assets and inherent price volatility. The researchers further stated that adding cryptocurrencies as a regulated investment vehicle would impart the idea on the investors that they are approved investment options.
At the same time, Lee noticed that risks associated with digital assets have a probability to rise. The researcher opined that regulatory policies should cover potential risk factors with crypto spot ETFs. Lee also claimed that the impact of digital assets on investors and financial markets is still unknown. Regulators have to compile sufficient measures as a way to introduce spot crypto ETFs.
On the other hand, the financial regulatory agency of South Korea has started to tighten rules around cryptocurrencies as a consumer protection policy. The regulated trading platforms in South Korea have a legal obligation to regulate and evaluate listed tokens starting from 19th July 2024. The trading platforms have to evaluate when to keep, support, or delist tokens on their platforms.
According to the new laws, all regulated trading platforms have to review more than 600 listed tokens on their platforms. In case of a rule violation, firms can face legal consequences such as financial penalties and jail time.
South Korean Regulators Approve Virtual Asset User Protection Act
The legislators in South Korea recently approved an Act on the Protection of Virtual Asset Users (PVAU). The policy will take effect on 19th July 2024. This Enforcement Decree has shared rules and procedures for the Financial Services Commission (FSC) to ensure PVAU implementation.
In this manner, FSC is set to put together a committee of officials and participants from the private sector to prepare a policy on virtual assets.
The committee participants are to ensure that the new regulations align with PVAU and do not pose harm to investors. The FSC also has the duty to identify credible financial firms that offer custodial services for virtual asset service providers (VASPs) to handle customer deposits.
Customer and VASP funds have to be separately stored and managed. At the same time, VASP funds are legible for staking in accordance with a risk-free agreement.
In case the regulatory status of the VASP expires or faces bankruptcy, the bank is under obligation to reimburse customers directly. FSC will also set the ration of VASP-listed digital assets that should be stored in cold wallets. This portion is said to be minimum 80%. VASPs can implement withdrawal and deposit limits under predetermined scenarios. PVAU was passed in July 2023 and has been subjected to criticism for lack of comprehensive regulations.
