South Korea Bans Bitcoin ETFs, Restricts Crypto-Related Funds

• South Korea bans Bitcoin ETFs, citing investor protection, sparking regulatory criticism.
• Global crypto ETF adoption rises as South Korea enforces stricter investment rules.
• Restrictive policies may hinder South Korea’s role in the evolving digital asset market.

South Korea has kept its crypto regulations in check yet again when it banned Bitcoin spot and futures ETFs thereby blocking funds that invest in virtual asset companies like Coinbase.

According to Ki Young Ju, Founder & CEO of CryptoQuant, these restrictions aim to protect investors, but critics argue they are excessive and hinder the nation’s alignment with global trends in digital asset regulation.

Ban Extends Beyond Bitcoin to Virtual Asset Companies

The Financial Supervisory Service (FSS) recently confirmed the rejection of ETFs targeting companies with virtual asset-based business models. Asset management firms had planned to introduce ETFs focusing on businesses like Coinbase, a leading cryptocurrency exchange. 

Despite being ready for immediate launch, these funds failed to gain approval. As a result, many domestic asset managers paused plans to submit similar ETF applications, closely watching the FSS’s actions.

The rejection is reportedly rooted in South Korea’s 2017 “Virtual Currency Emergency Measures,” which restrict financial institutions from dealing in virtual assets. While this administrative guideline aims to protect investors, it has faced criticism for lacking clear legal backing, particularly since firms like Coinbase are publicly traded and regulated by established financial laws abroad.

Global Trends Diverge from South Korea’s Approach

Internationally, the regulatory environment for cryptocurrency-linked investments is becoming more accepting. For instance, the U.S. market introduced leveraged ETFs tied to Coinbase in 2022.

These products have achieved significant trading volumes, with recent daily activity exceeding $1 trillion. Furthermore, American exchanges now facilitate cryptocurrency spot ETFs and options trading, showcasing a stark contrast to South Korea’s restrictive policies.

Read also: South Korean City Seizes and Sells Crypto for Unpaid Taxes

By blocking investments in virtual asset companies, South Korea risks isolating itself from global advancements in cryptocurrency regulation. Critics argue this approach limits domestic investors’ opportunities to diversify their portfolios. 

They also highlight the inconsistency of applying the 2017 guidelines to publicly traded companies, suggesting it may harm the nation’s competitive edge in the digital asset market.

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