Bank of Korea: Institutionalization of virtual assets will strengthen the connection with the financial market and requires management of spillover effects.

Odaily News South Korea's central bank stated in its second half financial stability report released on December 23 that as the global virtual asset market moves towards institutionalization, the correlation between virtual assets and traditional financial markets is strengthening. The report analyzes that driven by factors such as the expansion of participation from corporations and institutional investors, and the launch of Spot ETFs, the synchronization of virtual asset price fluctuations with the stock market is becoming increasingly significant. The spillover effect index analysis shows that shocks from the virtual asset market can affect traditional financial markets, especially during periods of macroeconomic shocks or shifts in monetary policy. The report believes that due to the prohibition of corporate participation in the market and restrictions on the issuance of financial products in South Korea, the current spillover effects are at a low level, with the market structure still dominated by individual investors. However, the Bank of Korea points out that if South Korea promotes the institutionalization of virtual assets in the future, the connection between virtual assets and traditional financial markets will expand, forming a transmission path for shocks. Therefore, during the process of institutionalization, it is essential to establish a system that can manage the potential risks brought about by synchronization at a bearable level.