Will South Korea Follow U.S. Lead in Approving Ethereum and Bitcoin ETFs?

• South Korea’s FSC maintains ETFs should only involve traditional assets, contrasting with U.S. digital asset integration.
• Jung Eui-jung urges South Korea to approve crypto ETFs to prevent investment migration to more progressive markets.

South Korea’s financial regulators are facing increased pressure to authorize cryptocurrency exchange-traded funds (ETFs) following a recent decision by the SEC to approve ETFs for Ethereum . This move by the SEC, which follows its earlier decision to permit Bitcoin ETFs in January, signifies a shift towards integrating digital assets with traditional financial markets.

In contrast, South Korea’s FSC and FSS have been cautious about allowing the trading of crypto assets on traditional securities markets. The FSC maintains that ETFs should only include traditional underlying assets such as international currencies and commodities, according to the Capital Markets Act.

“Under the circumstances, the SEC’s Thursday decision on ethereum is anticipated to press Seoul’s financial regulators to reconsider its regulations against digital assets,” said Xangle

The firm pointed out that such restrictions could undermine the competitiveness of the Seoul stock market, especially in light of government efforts to tackle the so-called “Korea discount”—a term used to describe the lower valuation of Korean stocks compared to their global counterparts.

Jung Eui-jung, the head of the Korean Stockholders’ Alliance, emphasized the urgency for South Korea to follow the U.S. lead in approving crypto ETFs . He argued that without such steps, Korea risks losing investment to more forward-moving markets like the U.S., where regulatory progress is accommodating a broader range of digital assets.

“It will be a matter of time for the U.S. to fully open the door for other less-traded cryptocurrencies and that Korea at least should approve ETFs for bitcoin and ethereum,” Jung added.

Jung highlighted the risk of investment flight from South Korea to the U.S. if regulatory policies do not evolve. He emphasized the importance of South Korea approving ETFs for prominent cryptocurrencies such as Bitcoin and Ethereum to preserve its competitive stance in the global market.

“Who would want to invest their money in a market that lags behind the fast-changing regulatory landscape?” Jung said.

In a separate but related development, FSS Governor Lee Bok-hyun hinted at a potential public discussion on the inclusion of cryptocurrencies in traditional finance, expected to commence in the latter half of the year. This discussion could signify a shift in regulatory attitudes towards digital assets in South Korea.

Additionally, the Democratic Party of Korea (DPK) has indicated that it will address the need to lower barriers on digital assets in the upcoming National Assembly session, aligning with its pledges from the April general election. 

This political support could play a role in shaping future regulatory frameworks and enhancing the integration of digital assets into South Korea’s financial system.