The discussion around lifting the ban on spot crypto ETFs opens up a broader conversation about market dynamics and competition within South Korea’s digital asset space.
South Korea’s financial regulators are reportedly exploring the possibility of lifting the ban on spot crypto exchange-traded funds (ETFs), a move that could significantly expand the nation’s digital asset investment landscape.
According to local media reports, the Financial Services Commission (FSC) is in the early stages of reviewing whether to allow spot crypto ETFs, a decision that could place South Korea alongside a growing list of countries permitting these investment products.
A Change of Heart
The market regulator revealed the decision during its annual audit session on Thursday, noting that the review process would be managed by the FSC’s newly formed crypto advisory committee.
The group is tasked with assessing digital asset policies and conducting discussions on related matters. The outcome of the review could potentially alter the country’s traditionally strict stance on investment products like spot crypto ETFs.
Following the US Securities and Exchange Commission’s (SEC) approval of Bitcoin spot ETFs in January 2024, the Korea Institute of Finance (KIF) expressed concerns, warning that introducing such financial products into South Korea’s economy could present significant risks.
The KIF cautioned that allowing spot ETFs could pull investor focus away from traditional industries, diverting capital and potentially slowing their innovation and growth.
In addition to reviewing crypto ETFs, South Korea plans to look into allowing the creation of institutional crypto accounts. The FSC has already established the Virtual Asset Protection Foundation in September to handle the matter. The organization will also be responsible for overseeing the return of customer’s assets from bankrupt crypto exchanges and those suffering from financial crises.
South Korea to Investigate Upbit
The FSC is also planning to investigate the monopolistic dominance of South Korea’s digital asset exchanges, with a particular focus on Upbit, the country’s largest platform for trading digital currencies.
Upbit stands out as the one of the five licensed exchanges in South Korea, handling over $1.17 billion in daily transactions, which accounts for more than 61% of the nation’s trading volume. In March, its market share surged to a staggering 80%, according to CoinMarketCap data.
During the audit session, Democratic Party lawmaker Lee Kang-il raised concerns over the company’s close financial relationship with K-bank, its banking partner, which is gearing up for an initial public offering (IPO).
K-bank’s reliance on Upbit has been identified as a potential risk to its IPO prospects, and the FSC’s investigation will evaluate the extent of Upbit’s influence on the market. The goal is to promote fairness and competition within South Korea’s crypto landscape.
In South Korea, crypto exchanges are required by law to partner with banks for the management of user deposits. Lee emphasized that 20% of K-bank’s total deposits are tied to Upbit, warning that any disruption in their partnership could trigger financial instability, including the risk of a bank run.
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