A finance and economics-focused think tank in South Korea argued against the East Asian nation approving spot crypto exchange-traded funds (ETFs).

Korea Institute of Finance researcher Bo-mi Lee argued in a paper that spot Bitcoin (BTC) and Ether (ETH) ETF results in various jurisdictions across the globe demonstrate that the losses outweigh the benefits.

Spot crypto ETFs could undermine financial stability

The researcher argued that introducing spot crypto ETFs in the country could harm its financial stability. According to the paper, when the spot ETFs are approved — and digital asset prices rise — a significant amount of capital will flow into the crypto market.

Lee argued that this would result in inefficiencies in resource allocation. The researcher also noted that financial market liquidity and financial companies’ health will worsen when prices go down.

Because of these, the researcher said that the country must do more research into the potential losses and benefits of introducing spot crypto ETFs. Currently, the researcher argued that the losses will be greater than the benefits that could be gained.

Lee also said there’s still a lack of understanding of digital asset value, and the assets exhibit high volatility. The researcher argued that introducing such products would lead market participants to believe these are “proven assets.”

In addition, Lee said that risks would increase. The researcher said regulatory measures must be well-prepared to reduce such risks. Lee added that the impact of digital assets on investors and the financial market is still uncertain. Regulators must prepare sufficient measures before introducing spot crypto ETFs.

Related: South Korea looks to upgrade status of crypto crime unit

South Korea requires exchanges to review token listings

South Korea’s financial regulator is tightening its rules on crypto assets to protect users. Starting on July 19, registered crypto exchanges in the country will be legally required to regulatry evaluate the tokens listed on exchanges.

The exchanges are mandated to evaluate whether to keep supporting or delist the tokens on their platform. Under the new law, all registered exchanges should review the more than 600 crypto assets listed.

Those unable to follow the rules will face severe penalties, including fines and jail sentences.

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