"Contrary to some concerns, virtual asset spot exchange-traded funds (ETFs) actually help reduce the unique volatility of virtual assets."
Christopher Jensen, vice president at U.S. asset management firm Franklin Templeton, explained the value of ETFs that include virtual assets like Bitcoin and Ethereum in a written interview with ChosunBiz.
Franklin Templeton is one of 12 firms that received approval from the U.S. Securities and Exchange Commission (SEC) for a Bitcoin spot ETF earlier last year. Its headquarters is in California, and its total assets under management (AUM) are approximately $1.6 trillion (about 234.6 trillion won).
Vice President Jensen noted, "While it is possible to hold Bitcoin directly, this lacks institutional safeguards. In contrast, ETFs operate under protective measures of the financial market, including custody (asset management), investor protection, and risk management."
Jensen stated that long-term investors who had not participated in this market due to distrust in virtual assets may be attracted to enter through the intermediary of ETFs. He remarked, "Especially from the perspective of risk diversification, it will be an attractive investment asset for investors looking to diversify their portfolios."
Vice President Jensen explained, "Many global investment institutions are paying attention to Bitcoin as a store of value and a potential hedge against currency depreciation, and as institutional participation increases, the virtual asset ecosystem will also stabilize."
Franklin Templeton is expanding its product line starting with Bitcoin and Ethereum, as well as other virtual assets like Ripple (XRP) and Solana (SOL). Some market observers predict that major market cap meme coins like Dogecoin (DOGE) could make their appearance in the ETF market.
However, Jensen drew the line that not all virtual assets are suitable for ETFs. He explained, "To be included in ETFs, they must have market liquidity, a trading-based system, transparent price disclosure, and resistance to price manipulation, and meme coins tend to be speculative in nature, making them difficult to structure as ETF products."
Jensen stated, "In the U.S., the virtual asset ETF is seen as an inevitable trend," adding, "The Korean capital market must also consider incorporating virtual assets into the regulatory framework to increase investor choices."
In South Korea, voices advocating for the introduction of virtual asset spot ETFs are also growing stronger. Seo Yoo-seok, chairman of the Korea Financial Investment Association, stated in a New Year’s address earlier this year, "We will support the expansion of business for financial investment companies such as virtual asset ETFs to ensure that the digital asset market can become a future growth engine for our capital market."
Jung Eun-bo, chairman of the Korea Exchange, also stated in a New Year’s address, "We will benchmark overseas cases of new businesses like virtual asset ETFs well to explore new areas in the capital market."
However, the financial authorities maintain a cautious stance. This is because the high volatility of the virtual asset market could transfer into a broader financial system instability. For example, if there is a rapid decline in virtual asset prices leading to a surge in ETF redemptions, a massive sell-off of virtual assets could occur, which might further drive prices down.
Jang Bo-sung, a researcher at the Capital Market Research Institute, remarked, "In this process, there is a possibility of market panic caused by the hedge failures of liquidity providers (LPs) or that LPs may face large-scale losses and liquidity shortages."
According to the report titled "Risks of Virtual Asset Spot ETFs" published by the Capital Market Research Institute, while funds raised by corporations through the issuance of securities such as stocks and corporate bonds can contribute to the real economy through investment and research and development, the economic benefits derived from virtual assets through mining or issuance remain unclear.