South Korea Might Lift Spot Crypto ETFs Ban Soon

Despite the Korean Institute of Finance’s concerns, South Korea’s Financial Services Commission (FSC) is considering lifting the spot crypto ETFs ban.

South Korea’s financial regulators are purportedly investigating the feasibility of lifting the prohibition on spot crypto exchange-traded funds (ETFs). This development could substantially broaden the nation’s digital asset investment landscape.

The Financial Services Commission (FSC) is currently in the preliminary stages of determining whether to permit spot crypto ETFs. According to local media reports, this decision could align South Korea with an increasing number of countries that allow these investment products.

A Change of Heart

During its annual audit session on Thursday, the market regulator disclosed the decision, stating that the FSC’s newly established crypto advisory committee would oversee the review process.

The group evaluates digital asset policies and facilitates discussions regarding pertinent topics. The review results could modify the country’s conventionally strict stance on investment products, such as spot crypto ETFs.

The Korea Institute of Finance (KIF) expressed apprehensions after the US Securities and Exchange Commission (SEC) approved Bitcoin spot ETFs in January 2024, cautioning that introducing such financial products into South Korea’s economy could pose substantial risks.

The KIF warned that accepting spot ETFs could potentially divert capital and impede the innovation and growth of traditional industries by diverting investor attention.

South Korea intends to investigate the possibility of permitting the establishment of institutional crypto accounts and conducting an evaluation of crypto ETFs. The FSC established the Virtual Asset Protection Foundation in September to address this issue. The organization will also be accountable for supervising the return of customer assets from bankrupt crypto exchanges and those experiencing financial crises.

Upbit to be investigated by South Korea

The FSC is also preparing to examine the monopolistic dominance of South Korea’s digital asset exchanges, with a particular emphasis on Upbit, the country’s largest platform for trading digital currencies.

Upbit is a notable entity in South Korea, as it is one of the five licensed exchanges. It processes over $1.17 billion in daily transactions, which accounts for over 61% of the nation’s trading volume. According to CoinMarketCap data, its market share increased to an astonishing 80% in March.

Democratic Party lawmaker Lee Kang-il expressed apprehension regarding the company’s close financial relationship with K-bank, its banking partner, during the audit session. K-bank is currently preparing for an initial public offering (IPO).

The FSC’s investigation will assess the extent of Upbit’s market influence, as K-bank’s dependence on Upbit has been identified as a potential risk to its IPO prospects. The objective is to foster competition and equity in South Korea’s cryptocurrency sector.

South Korean crypto exchanges are legally mandated to collaborate with banks to manage user deposits. Lee emphasized that 20% of K-bank’s total deposits are linked to Upbit, and he cautioned that any disruption in their partnership could result in financial instability, including the possibility of a bank run.