Bo-mi Lee, a researcher at the Korea Institute of Finance who specializes in finance and economics, opposed the launch of cryptocurrency ETFs in South Korea over concerns that they could have a detrimental effect on the country’s economy.

In his article, Bo-mi Lee explained that if spot ETFs linked to Bitcoin and Ether are approved in the country, this will lead to growth in the digital asset market. As a result, a significant amount of capital will flow into the crypto market, which will lead to inefficient allocation of resources and worsen the liquidity of the financial market. If cryptocurrencies “intercept” a large volume of cash flows, less investment will flow into local companies, which will make the South Korean financial market more vulnerable to the crisis, the expert fears.

“The emergence of cryptocurrency ETFs will make market participants believe that these are proven assets. While cryptocurrencies continue to show high volatility,” the researcher wrote.

Before allowing the launch of these investment products, South Korean authorities should carefully analyze the potential risks and benefits of introducing cryptocurrency ETFs, Lee writes. He insists that their implementation will cause more losses than benefits. Therefore, to reduce possible risks, it is necessary to develop clear rules for regulating the crypto market, the researcher concluded.

Last year, South Korea’s Financial Supervisory Service (FSS) began preparing regulations to complement the Virtual Asset User Protection Law. In April, South Korean regulators tightened the rules for listing new altcoins on centralized cryptocurrency exchanges operating in the country.