[Bank of Korea Financial Stability Report] "Domestic Cryptocurrency Market Cap 50 Trillion Won... Caution Against Excessive Speculation"

[Image source=Reuters Yonhap News]

[Asia Economy Reporter Eunbyeol Kim] Although concerns are growing that the rapidly expanding cryptocurrency (crypto asset) market could act as a risk factor in the future, the Bank of Korea has assessed that the impact would be limited even if crypto asset prices were to plummet at present.

In the "2021 First Half Financial Stability Report" released on the 22nd, the Bank of Korea stated, "After comprehensively examining the transmission channels of the crypto asset market to the domestic financial system, it is expected that the impact of a sharp decline in crypto asset prices will be limited at this time."

As of the end of last year, the scale of loans to domestic listed companies related to crypto assets was about 300 billion KRW, and there were no notable signs of a significant increase in financial institution loans for crypto asset investments or a shift of loan-linked stock investment funds to the crypto asset market, according to the Bank of Korea's evaluation. The fact that domestic financial institutions are prohibited from directly purchasing crypto assets was also cited as a reason for the limited exposure of financial institutions.

The Bank of Korea estimated the domestic crypto asset market capitalization at approximately 50 trillion KRW based on global market capitalization and the number of domestic virtual accounts. It added, "Considering the size of the crypto asset market, even if individual investors incur losses, the negative impact is expected to be limited."

The market capitalization of crypto asset-related company stocks is about 3.7 trillion KRW, which is only 0.1% of domestic listed stocks (2,655 trillion KRW), so the impact on the financial market is expected to be limited.

However, the Bank of Korea warned, "In a situation where financial imbalances accumulate, if excessive speculative demand is triggered without a strict evaluation of its economic value, the crypto asset market could act as a potential risk factor within the financial system."

At a press briefing, Lee Jung-wook, Director of the Financial Stability Bureau at the Bank of Korea, said, "Crypto assets exhibit sharp price volatility in the market, which appears to be the result of excessive risk-seeking behavior," adding, "Due to the rapid price fluctuations, individual investors could suffer significant losses, so caution is advised when investing."

This content was produced with the assistance of AI translation services.