[The Editors' Verdict] Ban on Brokerage of Bitcoin Spot ETFs: A Natural Decision

The U.S. Securities and Exchange Commission (SEC) has approved a Bitcoin spot exchange-traded fund (ETF), but Korean financial authorities have stated that Bitcoin spot ETFs listed in the U.S. cannot be traded domestically. This means that it is not possible to purchase Bitcoin spot ETFs listed on the U.S. stock market through domestic securities firms. However, futures ETFs can be purchased.

Cryptocurrency investors are very dissatisfied with this situation. They argue that no action was taken when Bitcoin ETFs were listed in Canada, Germany, Australia, Brazil, and other countries, but now that it has been listed in the U.S., such measures have been implemented.

It is unclear what the problem is. Is it natural to demand that because the U.S. approved spot ETFs, Korea should allow trading of those ETFs? The stock markets of Canada, Germany, Australia, and Brazil are on a completely different level from the U.S. stock market. How many Koreans trade stocks in those markets? Compare that to the U.S. market.

Why is it a problem that the government allows Bitcoin futures ETFs but not spot ETFs? Futures and spot are different. Futures are derivatives. They have hedging functions to reduce risk, leverage functions, and the ability to synthesize new financial products by combining derivatives.

ETFs allow investment by industry sector and by style, such as large-cap, mid-cap, small-cap, value, and growth stocks. They enable trading of commodities like gold, crude oil, and raw materials, which are difficult to trade directly, in the form of stocks. However, cryptocurrency spot ETFs are different. Cryptocurrencies can be traded easily. Spot ETFs are not much different from trading Bitcoin on actual cryptocurrency exchanges. Those who want to buy spot ETFs can simply buy Bitcoin on cryptocurrency exchanges. The fees are reportedly cheaper on cryptocurrency exchanges as well.

Why do cryptocurrency investors dislike the government's ban on brokerage of Bitcoin spot ETFs? They want investment demand to increase as Bitcoin gradually expands into the institutional sector. However, cryptocurrencies like Bitcoin still have a strong speculative nature and have never been used for useful or productive purposes in the real economy.

In the stock market, when you invest in a company's stock, the company raises funds to conduct its business. What else is the money invested in cryptocurrencies used for besides driving up the price? Nothing (in fact, it is used for criminal means such as money laundering, illegal inheritance, and gifts). Funds are invested with the expectation of price increases, and the invested funds raise prices, leading to further investment. This is typical speculation.

The U.S. SEC did not approve the listing of Bitcoin and other cryptocurrency ETFs because it recognizes cryptocurrencies as part of the institutional system. It was due to a court ruling. The basis for approval was the loss in a lawsuit with Grayscale in August last year. Gary Gensler, SEC Chairman, explained on the 10th (local time), "We act within the framework of the law and according to the court's interpretation of the law," adding, "Until March last year, the SEC rejected more than 20 rule change (19b-4) filings for Bitcoin spot ETPs. But the situation changed after losing the lawsuit related to Grayscale GBTC's conversion to a spot ETP."

Chairman Gensler urged, "Bitcoin spot ETP operators must provide fair and truthful disclosures about the product, and exchanges must establish rules to prevent fraud and market manipulation." In his statement, he consistently used the term ETP (Exchange Traded Product) rather than ETF (Exchange Traded Fund). The term "product" refers to a broad category of products, indicating reluctance to recognize it as a formal financial product called a fund.

Gensler stated, "Today we approved the listing and trading of certain Bitcoin spot ETP shares, but we did not approve or endorse Bitcoin," and warned, "Investors should continue to pay close attention to the numerous risks associated with products linked to Bitcoin and crypto assets."

The government has long prohibited institutional financial companies such as securities firms from trading or brokering cryptocurrencies. The government's ban on brokerage of Bitcoin spot ETFs is natural and a consistent decision reflecting its previous stance.