South Korea FSS urges ETF managers to reduce holdings in Coinbase and MicroStrategy, reinforcing its cautious stance on crypto exposure.
By ordering local asset managers to rebalance their exchange-traded funds (ETFs), South Korea’s Financial Supervisory Service (FSS) has strengthened its stringent stance against cryptocurrency investments.
According to the most recent allegations, the financial watchdog has reportedly told investment firms to limit their exposure to cryptocurrency-related businesses, such as Coinbase and Strategy.
South Korea FSS Strictly Regulates Cryptocurrency Investments
According to a recent Korean Herald report, South Korea FSS has advised asset managers to adjust their ETFs and reduce their exposure to firms like Coinbase and Strategy.
The regulators cautioned these platforms “not to excessively include” cryptocurrency equities such as COIN and MSTR in their holdings.
The South Korea FSS order, which highlights that regulated financial institutions are still not allowed to invest in digital assets, notably restates the 2017 guidelines on virtual currencies.
This action goes against earlier signals that the South Korean regulator was looking into ways to relax the criteria for trading digital assets, instead enforcing stringent guidelines for cryptocurrency investments.
Financial institutions are also forbidden under the South Korea FSS guidelines from purchasing, retaining, or investing in virtual assets and using them as collateral. According to an official,
Recently, there has been a trend of deregulation related to virtual assets in the U.S. and Korea, but there have been no specific laws or guidelines established yet. This means that existing guidelines should be followed until the new system is complete.
According to reports, South Korea has been improving, moving past its unofficial prohibition on institutional cryptocurrency trading.
The nation has stepped up its attempts to update its crypto laws, particularly since pro-crypto President Lee Jae-myun was elected.
South Korea FSS has announced plans to classify cryptocurrency enterprises as venture companies, providing access to financial incentives, tax breaks, and government support, as CoinGape previously reported.
Regulatory Issues With Stocks With Crypto Themes
The Financial Supervisory Service (FSS) has released guidelines that target increasing cryptocurrency-related equities in ETFs, even though South Korea’s ETF sector has reached a noteworthy milestone with over 1,000 funds listed.
This move is remarkable, Given South Korea’s sizable cryptocurrency industry, which has 18.25 million investors and is renowned for its aggressive retail trading.
The South Korea FSS action might respond to worries about the explosive rise of “coin-themed” stocks, such as those of mining firms and cryptocurrency exchanges, and how they would affect the ETF market.
According to reports, many domestic ETFs—some of which have an allocation of over 10%—are exposed to companies linked to virtual assets.
For instance, 14.59% of Coinbase is held by the ACE US Stock Bestseller ETF.
Likewise, the KoACT US Nasdaq Growth Company Active ETF owns 6.04% of Strategy and 7.44% of Coinbase.
Industry Opposes Regulations
The strict crypto laws worry the industry since they could impede the nation’s advancement in the digital asset sector.
Significantly, the nation’s cautious stance follows positive improvements.
For example, Parataxis Holdings announced plans to purchase a majority stake in Bridge Biotherapeutics for $18.5 million to establish South Korea’s first Bitcoin Treasury company.
According to industry insiders, passive exchange-traded funds (ETFs) that seek to replicate an index find it challenging to exclude specific equities without departing from their investment goal.
Because they are already indirectly investing in cryptocurrency through US-listed ETFs, domestic market participants argue that imposing regulatory norms just on local ETFs is unfair.
“Restricting only domestic ETFs will not stop the flow of funds,” they stated, adding that many investors are already using U.S. ETFs to avoid the market.
The effectiveness of the regulations in practice is doubtful.
