South Korea Continues to Wait for Crypto ETFs Despite High Demand
Despite the recent approval of Ethereum-linked funds by the US Securities and Exchange Commission (SEC), South Korean investors are still eagerly anticipating the introduction of spot cryptocurrency ETFs. The SEC’s approval of eight spot ether ETFs on May 23 has potentially paved the way for their trading later this year. This decision followed the groundbreaking approval of spot Bitcoin ETFs by the SEC four months earlier. However, South Korea, known for its high demand for cryptocurrencies, still has a long way to go before spot crypto ETFs become accessible to local investors.
South Korea has seen a significant increase in demand for cryptocurrencies, with the Korean won becoming the most widely used currency for trading crypto on centralized exchanges globally in the first quarter of this year. It boasted a cumulative trade volume of $456 billion, surpassing the US dollar volume of $445 billion. Despite this, local authorities remain cautious about the crypto market.
The Financial Services Commission (FSC), South Korea’s local regulator, expressed concerns earlier this year when Bitcoin-based ETFs were listed in the US. The FSC worried that brokering spot crypto ETFs could contradict the government’s stance. Currently, the Capital Market Act in South Korea does not specify virtual assets as underlying assets for securities.
Industry experts believe that spot crypto ETFs could be introduced in South Korea if the FSC broadens the definition of underlying assets. However, they argue that a revision of the existing law is necessary. One key point of contention is the role of custody. Unlike futures-based crypto ETFs, fund issuers of spot ETFs must hold custody of the cryptocurrencies through contracts with exchanges or other service providers.
Kim Kab-lae, a senior research fellow at the Korea Capital Market Institute and head of the Financial Law Research Center, warns that without a law revision, allowing the trading of spot crypto ETFs could lead to legal disputes and chaos. He urges the National Assembly to partner with financial regulators to speed up the law revision process, enabling Korean financial investment businesses to launch competitive products on a global scale.
In a bid to attract crypto enthusiasts and secure votes, both major political parties in South Korea have expressed their intentions to adopt crypto-friendly policies. The ruling People Power Party has pledged to prioritize the establishment of a regulatory framework for virtual assets, while the opposition Democratic Party of Korea aims to enable local financial institutions to offer spot crypto ETFs.
Despite their firm stance against spot crypto ETFs, local authorities are closely monitoring the rapidly growing crypto market. The FSC plans to establish a dedicated division to oversee virtual assets, separate from the existing Financial Innovation Bureau, which currently handles various digital finance matters. This new division will focus on virtual asset policies in line with the upcoming Act on the Protection of Virtual Asset Users, set to be enacted in July.
As competition in the global crypto ETF market heats up, with countries like Canada, Germany, and Brazil already incorporating spot bitcoin ETFs, Hong Kong became the first Asian country to debut spot cryptocurrency ETFs in April. Australia’s leading exchange in the Asia-Pacific region is also expected to approve such funds later this year.