[News Focus] US’ decision on Bitcoin ETF to set mood for Korea‘s cryptocurrency market

The bearish global cryptocurrency market has prompted investors to turn their attention to “safer” bitcoin exchange-traded funds. But South Korean institutions have kept a tight leash on the whole cryptocurrency industry, instead observing the US’ steps for the time being.

“The US has been the front-runner on the cryptocurrency market and related derivatives, and there are strong voices supporting the launch of bitcoin ETFs within the market -- which is why we are observing the progress and response of the US Securities and Exchange Commission’s decision on bitcoin ETFs,” an official at the nation’s main bourse operator Korea Exchange told The Korea Herald on condition of anonymity Wednesday. 

“Providing a solid index required for the launch of such ETFs and of its role when it is commercialized and integrated into the market is being discussed expansively at the KRX because it would eventually concern investor protection issues,” the official added.

The US SEC is expected to make an initial decision on bitcoin ETF proposals submitted by a slew of cryptocurrency exchanges by April 5.

Investors believe that bitcoin ETFs -- expected to be a type of investment fund with the cryptocurrency as an underlying asset instead of other assets such as gold, oil or a stock index -- will rejuvenate digital currencies, which have been in freefall for a while.

While aware of the market for bitcoin ETF, local investment banks and asset management firms have been more focused on managing blockchain ETFs, which are not as scrutinized by the Financial Supervisory Service.

“We currently manage an overseas blockchain ETF called the Horizons Blockchain Technology & Hardware ETF, but have yet to engage in any bitcoin transactions,” a spokesperson for Mirae Asset Global Investments said.

Despite the government and finance industry’s wary stance on cryptocurrency, experts project that South Korea’s interest in blockchain technology will eventually pave the way for building a safe platform for bitcoin ETFs.

“With the government expanding its investment in research and development of blockchain technology, the projects are expected to minimize or eliminate the risk of integrating ETF transactions in the cryptocurrency market,” Lee Kyung-ho, a professor at Korea University’s Graduate School of Information Security said.

Lee pointed out that in order for bitcoin ETF transactions to local cryptocurrency exchanges must comply with the rules of know-your-customer and anti-money-laundering in order for such ETF transactions to settle in.

“The government has been requesting cryptocurrency exchanges to adopt what is known as the rules of KYC and AML to boost transparency in transactions. And the recent change in the bitcoin ecosystem, with miners’ decline in market share, the exchanges are likely to accept the proposal,” the expert said.

By Jung Min-kyung (mkjung@heraldcorp.com)