[THE VIEW] Virtual Currency Remains a Risky Asset

Approved Spot Bitcoin ETF
SEC Classifies Bitcoin as a Risk Asset

On January 10 (local time), the U.S. Securities and Exchange Commission (SEC) approved 11 Bitcoin spot exchange-traded funds (ETFs). Companies listing Bitcoin ETFs have begun actively attracting investors by lowering management fees, while some have hailed this as a historic moment. The issue, however, is that ETF prices still exhibit high volatility afterward. Investors need to understand what the SEC’s approval means and what concerns remain.

First, the SEC’s move enables the influx of more investors. Previously, investors had to open accounts on cryptocurrency exchanges to invest in Bitcoin. But with multiple investment firms listing ETFs, a channel has opened allowing investment through existing securities accounts just like any other listed fund. Therefore, Bitcoin’s liquidity is expected to increase.

Additionally, the SEC’s decision ensures that investors are legally protected by appropriate oversight and regulation. Funds listed on exchanges, such as ETFs, are obligated to disclose information for investor protection. Moreover, since ETFs are traded on exchanges regulated by the SEC, investors can be shielded from various unfair trading practices, and investigations by the SEC or related agencies may be conducted.

However, cryptocurrencies are still not entirely safe. According to the SEC’s statement, Bitcoin remains a highly volatile asset and is classified as a risky asset used for ransomware, money laundering, regulatory evasion, and terrorist financing. U.S. government agencies related to cryptocurrencies include not only the SEC but also the Department of Justice (DOJ), the Financial Crimes Enforcement Network (FinCEN) under the Treasury Department, and the Commodity Futures Trading Commission (CFTC), making policies and regulations from these agencies a sensitive matter.

Furthermore, the SEC’s decision authorized Bitcoin ETFs but did not endorse Bitcoin itself or recognize it as an official currency. Bitcoin is still different from industrial materials like iron or gold or consumable goods, so uncertainty in value measurement remains high, which is an inherent limitation of most cryptocurrencies.

Unlike most stock ETFs, Bitcoin ETFs hold a single asset, so they lack the diversification benefits gained from holding various assets. Unless the SEC recognizes many cryptocurrencies and approves ETFs containing other cryptocurrencies, the meaning of diversification is unlikely to emerge. Of course, this move shows that a foundation has been laid for the SEC to approve other cryptocurrency ETFs, which could send a positive signal to the cryptocurrency market, but it will not completely eliminate the uncertainty of cryptocurrency values and the risks investors face.

In South Korea, Bitcoin is not classified as a financial product under the Capital Markets Act, so investing in Bitcoin ETFs is currently not possible. Even if Bitcoin or other cryptocurrencies enter the regulatory framework in the future, indiscriminate investment should definitely be cautioned against.

Seonggyu Park, Professor at Willamette University, USA

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