South Korea bans ETFs tracking crypto-related companies

South Korea’s financial watchdog has doubled its restrictive stance toward crypto, rejecting the launch of exchange-traded funds (ETFs) that track companies linked to digital assets. 

Local media reported on Nov. 20 the Financial Supervisory Service (FSS), citing policies rooted in a 2017 government directive, has barred asset managers from introducing ETFs focused on firms like Coinbase. 

This move follows a broader prohibition on Bitcoin (BTC) spot and futures ETFs due to the South Korean Capital Markets Act, effectively sidelining an essential avenue for institutional investment.

Contrary to global movements

The decision to block ETFs investing in virtual asset firms has put domestic asset managers on hold. A representative from one management firm revealed that the FSS has stalled efforts to launch a Coinbase-focused ETF indefinitely. 

The source added:

“We’re prepared to launch immediately once we secure regulatory approval.”

The regulatory hurdles have also prompted hesitation among other players. Another firm, considering blockchain-focused ETFs, said that even without explicit guidelines from the FSS, the rejection of similar products has made them cautious. 

Local market participants have argued that the current approach is overly cautious and legally questionable. 

Jung Soo-ho, Managing Partner at Renaissance Law Firm, pointed out that investments in publicly traded companies like Coinbase do not violate the Capital Markets Act, adding that the FSS’ stance lacks a clear legal foundation. 

He added:

“While these measures may be intended to protect investors, they essentially function as unwarranted regulatory overreach.

Meanwhile, an FSS official stated that the regulator can’t relax its policies even as demand for Bitcoin as an investment in South Korea rises.

Potential change

Despite the FSS prohibition, South Korea’s Financial Services Commission (FSC) will create a Virtual Asset Committee to tackle the approval of spot crypto ETFs.

The new committee, led by FSC Vice Chairman Soyoung Kim and including representatives from related government departments and nine private sector members, will oversee and guide the crypto industry.

Additionally, the Virtual Asset Committee will address the authorization of corporate accounts for crypto investing.

According to a report by Chainalysis, South Korea was the Eastern Asian country with the largest crypto transaction value between 2023 and 2024, receiving roughly $130 billion in crypto.

The significant volume is driven by South Koreans’ mistrust of traditional financial systems and boosted by efforts from large companies such as Samsung in the crypto industry.

 Institutions use decentralized applications extensively in the South Korean crypto market, playing a fundamental role in crypto adoption.

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