[Digital Gold Era]① Zengle "Gold Was Initially Jewelry... Bitcoin Gained Recognition"

Interview with Kim Ji-hye, Head of Jaengle Research Center
US Bitcoin Spot ETF Approval
Halving Expected to Further Increase Scarcity This Year

Editor's NoteOn the 10th, the U.S. Securities and Exchange Commission (SEC) approved a Bitcoin spot ETF. The SEC stated that this approval does not mean they endorse Bitcoin. Contrary to the SEC's stance, the virtual asset industry views the SEC's approval of the Bitcoin spot ETF as a milestone. It signifies that Bitcoin has effectively entered the institutional framework. We gathered industry voices to understand what the approval of the Bitcoin spot ETF means and how much the market might grow.

The Bitcoin spot exchange-traded fund (ETF), which holds the leading virtual asset Bitcoin, debuted on the U.S. stock market on the 11th (local time). This victory was hard-earned by the virtual asset industry, which had faced setbacks since 2013 and even engaged in legal battles. The trading volume on the first day of listing reached a staggering $4.6 billion (approximately 6 trillion KRW). The virtual asset industry regards the approval of the spot ETF in the U.S., a financial hub, as the dawn of the 'digital gold era.'

Kim Ji-hye, Head of the Zzanggle Research Center, is conducting an interview with Asia Economy Newspaper at the Zzanggle headquarters in Gangnam-gu, Seoul on the 18th. Kim stated, "The approval of the Bitcoin spot ETF signifies the recognition of assets suitable for the new digital era."

Recently, at the headquarters of Zangle in Gangnam-gu, Seoul, Kim Ji-hye, head of the Zangle Research Center, said, "The approval of the Bitcoin spot ETF means that assets suitable for the new digital era have been recognized," adding, "Just as gold was initially used as jewelry and later recognized as currency and a store of value, Bitcoin is now being acknowledged as a commodity."

Kim Ji-hye stated, "With the approval of the Bitcoin spot ETF, we expect an inflow of investment funds around 20 trillion KRW, similar to market consensus (average estimates). Although the timing cannot be specified, we anticipate that Bitcoin's price will surpass previous highs and reach new peaks due to institutional adoption effects." According to CoinMarketCap, Bitcoin reached an all-time high of $64,455 in November 2021. As of the 19th, the current price is around $41,000.

Market changes expected from the U.S. SEC's approval of the Bitcoin spot ETF and why this approval is important.

▲The approval of the Bitcoin spot ETF means that a legal method to invest directly in Bitcoin within the institutional framework has been authorized. While futures ETFs bet on Bitcoin derivatives, spot ETFs invest directly in Bitcoin. The SEC's approval acknowledges this. Investors can now invest through existing securities accounts, increasing liquidity. This is not just about opening an investment channel but also recognizing an asset suitable for the new era. Gold was initially used as jewelry and partly as currency; now, it is recognized as a store of value. Bitcoin being acknowledged as a commodity through an ETF can be understood in this context. What is more important is how interpretations of other altcoins (virtual assets excluding Bitcoin) will unfold. We live in a metaverse (virtual reality world) where e-commerce is widely used. While face-to-face meetings still occur, Zoom meetings and remote work are common. The MZ generation often prefers communication via messengers. At a time when new assets suitable for the digital era must be actively introduced, the approval of the spot ETF is the starting point for a paradigm shift.

Kim Ji-hye, Head of the Jaengle Research Center, is responding to an interview on the 18th.

Institutions have issued rosy forecasts, expecting increased capital inflows due to the spot ETF approval. The estimate is around 20 trillion KRW; what is the basis for this estimate?

▲Our house does not officially release forecasts, but the market cites figures based on the Canadian spot ETF case. We also expect a scale of about 20 trillion KRW, similar to market consensus. According to a 2021 report by the overseas investment advisory firm Devere Group, surveys show that Generation X and Millennials increasingly recognize Bitcoin as digital gold (67%). Calculating how large the market capitalization would be if 1% or 5% of total assets were invested, the estimate was $1.5 trillion and $7.4 trillion, respectively, at that time. Considering the current Bitcoin market cap is about $800 billion, this is encouraging.

If capital inflows increase, price rises are also expected. Can short- and long-term estimates be made? Is a return to past investment boom levels possible?

▲If we consider whether Bitcoin can surpass previous highs, it is certainly possible. The timing is difficult to estimate. Short-term declines are due to supply and demand issues. From a trading perspective, selling pressure appeared after the news, indicating liquidity redistribution. Some analyses suggest interest shifted to the possibility of an Ethereum ETF approval, but that is a separate matter. Ethereum still faces securities classification issues, so although approval might come faster than Bitcoin's case, it will still take time. From a long-term perspective, considering institutional adoption effects, we expect new all-time highs. Due to the nature of our house, we do not provide precise price estimates.

Virtual assets are sometimes described as 'digital gold.' What is your view on this? SEC Chair Gensler maintained a negative stance on Bitcoin in his statement, clearly distinguishing between gold and Bitcoin. Do you think Bitcoin has the same impact as gold?

▲Within the crypto market, Bitcoin is seen as a store of value. The most important properties of gold are scarcity and immutability. Bitcoin possesses both. With the halving scheduled this year, scarcity may increase further. The rise in Bitcoin-based initiatives, such as Bitcoin-based non-fungible token (NFT) minting protocols and various derivatives relying on Bitcoin, strengthens its position as digital gold. Chair Gensler likely had to comment conservatively, representing traditional finance, due to the impact of his words. Nevertheless, since the Bitcoin spot ETF was approved, I believe his stance was more about pacing than negativity.

The SEC approved 11 spot ETF products simultaneously. Which products are considered competitive, and what factors should investors focus on when choosing among available ETFs?

▲It is similar to investing in other ETFs. Investors should consider management fees, assets under management (AUM), trading volume and liquidity, the track record of the management company, and the actual Bitcoin premium/discount. The applicants are globally renowned asset managers, so differences among them may not be significant. There is fierce competition to lower fees, and many promotions offer free management for certain periods. Both B2B and retail sectors will be heavily influenced by marketing. Integration with primary trading accounts will also have an impact.

Kim Ji-hye, Head of the Jaengle Research Center, is responding to an interview on the 18th.

With ETFs opening, institutional capital inflows are expected, but accessibility for individual investors, who previously had limited access, will also improve. For novice investors without much experience in direct virtual asset investment, what market-specific characteristics should they be cautious about?

▲I would advise approaching with a long-term perspective. Bitcoin should be viewed as part of a diversified portfolio. Some individual investors tend to invest most of their funds in specific assets like gold or oil, a so-called 'all-in' approach. I recommend approaching Bitcoin as one of various investment options. However, since spot ETF investment is not yet approved in Korea, it is necessary to carefully consider domestic regulations and tax issues.

The bankruptcy of the third-largest exchange and the Luna-Terra incident were major factors undermining trust. What self-regulatory efforts is the industry making?

▲We are striving to provide more meaningful services and establish higher compliance standards. While multiple factors contributed to the FTX bankruptcy, lack of risk management was the biggest. Within Zangle, we are preparing systems and services that match risk management levels. To gain understanding beyond the industry to traditional sectors and the general public, we need to create services or products that demonstrate the utility of virtual assets and how they can solve real-world problems. The approval of the Bitcoin spot ETF was achieved by continuously supplementing the application despite challenges. Like the government and institutional sectors establishing the Virtual Asset User Protection Act and accounting supervision guidelines, I believe the market can only be built through public-private cooperation. Zangle introduced an enterprise resource planning (ERP) service specialized for virtual assets in beta form at the end of last year and plans an official launch in the first half of this year. We are preparing services and expanding information disclosure and research for communication purposes.

The Virtual Asset User Protection Act came into effect in July this year, and the financial supervisory authorities have established dedicated departments. As the market matures, what does the industry hope for?

▲I believe regulation is an inevitable process for market maturation. We intend to follow up as thoroughly as possible when guidelines are issued. We also plan to utilize ERP and existing portal services. Foundations issuing virtual assets should also work together for greater growth. Investors should cultivate a culture of actively using information rather than making blind investments. The virtual asset industry must accept regulation with an open mind and actively consume information for the system to progress positively.