Bank of Korea: The institutionalization of virtual assets will strengthen their connection with financial markets, and spillover effects need to be managed.

In its second-half Financial Stability Report released on December 23, the Bank of Korea stated that the correlation between virtual assets and traditional financial markets is strengthening as the global virtual asset market becomes more institutionalized. The report analyzes that, driven by factors such as increased participation from corporate and institutional investors and the launch of spot ETFs, the synchronicity between virtual asset price fluctuations and the stock market is becoming increasingly significant. Spillover effect analysis shows that shocks from the virtual asset market can affect traditional financial markets, especially during periods of macroeconomic shocks or monetary policy shifts. The report believes that in South Korea, due to the prohibition of corporate participation and restrictions on the issuance of financial products, the current spillover effect is at a low level, and the market structure remains dominated by individual investors. However, the Bank of Korea points out that if South Korea further institutionalizes virtual assets, the connection between virtual assets and traditional financial markets will expand, forming a shock transmission path. Therefore, during the institutionalization process, it is essential to establish a system capable of managing the potential risks brought about by synchronization within an acceptable level.