South Korea’s eager investors are still waiting for the arrival of spot cryptocurrency ETFs, despite the recent approval of Ethereum-linked funds by the US Securities and Exchange Commission (SEC). The SEC’s decision in May to approve eight spot ether ETFs has potentially paved the way for their trading later this year, following the earlier approval of spot Bitcoin ETFs. However, South Korea, a country known for its high demand for cryptocurrencies, still has a long way to go before local investors can access spot crypto ETFs.
South Korea has seen a surge in demand for cryptocurrencies, with the Korean won becoming the most widely used currency for trading crypto on centralized exchanges 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 demand, local authorities remain cautious about the crypto market.
The Financial Services Commission (FSC), South Korea’s local regulator, expressed concerns when Bitcoin-based ETFs were listed in the US earlier this year. 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 and revises the existing law.
One of the key points 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, warns that without a revision of the law, allowing the trading of spot crypto ETFs could lead to legal disputes and chaos. He urges the National Assembly to speed up the law revision to enable Korean financial investment businesses to launch competitive products globally.
Both major political parties in South Korea are vowing to support crypto to appeal to the crypto-enthusiastic public and secure votes. The ruling People Power Party aims to establish 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 cautious stance on spot crypto ETFs, local authorities are closely monitoring the rapidly growing crypto market. The FSC is reportedly planning to establish a dedicated division to oversee virtual assets, separate from the existing Financial Innovation Bureau, to focus on virtual asset policies aligned with the upcoming Act on the Protection of Virtual Asset Users.
While countries like Canada, Germany, and Brazil have already embraced 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 this year. As competition in the global crypto ETF market intensifies, South Korea must act swiftly to avoid missing out on opportunities in this rapidly evolving industry.