ANALYSIS US bitcoin ETF debut will not boost crypto growth in Korea
A digital banner for the newly listed ProShares Bitcoin Strategy ETF is displayed on the floor of the New York Stock Exchange (NYSE) on Tuesday in New York City. AFP-Yonhap
Regulation will curb qualitative growth of crypto market in Korea
By Lee Min-hyung
The much-anticipated debut of the first U.S. bitcoin-linked exchange-traded fund (ETF) will not help drive the qualitative growth of the cryptocurrency industry in Korea unless financial watchdogs here shift their current stance of maintaining stiff regulatory scrutiny over any trading of virtual assets, bank industry officials said Wednesday.
Officials from the Financial Services Commission (FSC), the country's top financial policy regulator, were unavailable for comment regarding the possible future effects of the debut of U.S. bitcoin ETF on the local financial market.
The Bank of Korea, the country's central bank, only said that the bank will be monitoring any developments of the issue. “We will keep enhancing our monitoring of the issue,” a BOK official said. “We do not have any official comment regarding the U.S. bitcoin ETF debut.”
These mute stances on the debut by analysts have come amid heightened expectations for bitcoin's earlier institutionalization, following the fact that the ProShares Bitcoin Strategy ETF started trading on Tuesday and jumped around 5 percent to close at $41.94 (49,000 won).
Despite the first bitcoin ETF's solid start in the U.S., local industry sources said that it still remains to be seen whether the debut will send a positive signal for Korea's crypto market growth as analysts say that the debut is more symbolic than anything else.
“It is symbolic that the U.S. authorities granted approval for bitcoin ETF futures trading at a time when a number of countries, including Korea, still consider cryptocurrency trading risky and speculative due to its volatility,” a source in the Korean financial industry said.
The report, in itself, may cast a “catfish effect” over the local cryptocurrency industry, but it will take an enormous amount of time for the market to achieve a major, game-changing leap forward because of tough regulatory hurdles, according to the source.
“Given the exponential growth of U.S. crypto transactions, cryptocurrency trading in the United States is on track to become rapidly institutionalized,” he said. “Unfortunately, we cannot expect such growth for the time being and this will be the case in the future, unless watchdogs change their negative views of the market.”
The FSC, which also oversees crypto-related regulations, recently carried out a reorganization of the local crypto exchanges. Only four of them survived, with many others failing to win a license to operate Korean won-trading services under the toughened regulations, as of Sept. 25.
FSC chief Koh Seung-beom has also reiterated his “not-that-favorable” stance toward crypto asset trading and pushed for the mass shutdown of the exchanges, saying that “crypto investors' speculative acts made via exchange operators should come to a halt.”
Another official from the banking industry, however, said that investors should leave open the possibility that the initial success of the bitcoin ETF could be short-lived.
“Korean watchdogs do not necessarily follow the moves of the U.S., simply due to the successful launch of a bitcoin ETF there,” the official said. “This is because of the volatility issue surrounding cryptocurrency prices. Many view bitcoin as one of the safest crypto assets, but we still need to monitor whether the bitcoin ETF will be able to continue its stable growth down the road.”
The bitcoin price has been on a rollercoaster ride throughout 2021. One bitcoin was traded at as high as around 80 million won in April at Upbit, a local crypto exchange, doubling its valuation in about two months. But it then went on a steep decline until July, when it then started bouncing back to around the previous high this year.
Like others contacted by The Korea Times, the official also stressed that given the regulation-first stance by the FSC toward virtual asset trading, the U.S. bitcoin ETF debut will likely have little impact on the local financial market.
“Regardless of this recent event in the world's largest economy, Korea's crypto market will only be able to achieve quantitative growth due to massive market liquidity,” the official added. “The regulatory stance may be eased only after the government acknowledges the necessity of blockchain technology, which underpins cryptocurrency.”