Foreign Crypto Exposure Spurs Korean ETF Curb

To curb foreign crypto exposure, South Korea’s Financial Supervisory Service (FSS) has urged local asset managers to limit ETF holdings in stocks like Coinbase and Strategy.

As per a local publication’s report published on 23 July 2025, the FSS stated through its directive that the involved parties must adhere to the 2017 administrative guideline on virtual currencies, which remains in effect.

An FSS official was quoted by the publication stating, “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,” the official concluded.

Furthermore, the FSS’s directive also includes rules that prohibit financial institutions from holding, investing in, or accepting virtual assets as collateral. Regulators in the region have prohibited corporate transactions of virtual currency in South Korea since 2017.

At the time of the rule’s passing, concerns over money laundering drove the government’s decision, particularly in regards to the heightened risk associated with corporate trading as opposed to retail trading of cryptocurrencies.

South Korea’s Financial Supervisory Service has issued verbal guidance to asset managers:

Limit exposure to crypto-related stocks like @coinbase & Strategy in ETFs.

Emergency crypto measures from 2017 remain in effect.#SouthKorea #CryptoRegulation #ETFs #Coinbase pic.twitter.com/UTzRBjvHsh

— The Coin Republic (@TCR_news_) July 23, 2025

An official said, “Although both US and Korean regulators are showing signs of easing crypto rules, no concrete laws or guidelines have been implemented.”

The guideline follows an increased regulatory freedom shown by South Korean regulators in recent times. Just a couple of weeks ago, South Korea’s Ministry of SMEs and startups proposed to lift restrictions that kept crypto firms from getting tax breaks and other support initiatives.

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Domestic ETF Limits Questioned Amid Rising Foreign Crypto Exposure

The FSS issued its guidance amid growing concerns regarding an increased presence of “coin-themed stocks” such as crypto exchanges and mining firms with ETF portfolios.

According to the report, in South Korea’s domestic listed ETFs, numerous products hold more than 10% of their portfolio in virtual asset-related stocks. Case in point, the Korea Investment Trust Management’s ACE US Stock Bestseller ETF holds around a 14.59% stake in Coinbase.

Similarly, the KoACT US Nasdaq Growth Company Active ETF includes 7.44% in Coinbase and 6.04% in Strategy, bringing its total investment in virtual asset-related stocks to 13.48%.

Industry leaders have pointed out that these ETFs passively mirror predefined indices. Furthermore, these are difficult to exclude without distorting index tracking.

An industry insider noted in the report, “If stocks are arbitrarily excluded without changing the index, the gap rate could skyrocket.”

“I understand the regulatory tone, but it is not easy to respond immediately,” he further added.

Moreover, there is growing concern regarding the policy’s focus on domestic ETFs. Market participants have observed that local investors have continued to gain exposure to crypto equities through U.S.-listed ETFs.

Another source was quoted by the publication, stating, “Restricting only Korean products won’t stem fund flows. Many are simply shifting to overseas vehicles, raising doubts about the policy’s real-world impact.”

South Korean Exchanges Struggle To Break Into Big Leagues

With the South Korean FSS issuing its advisory, posing challenges to international firms looking to operate in the region, its domestic players, too, are struggling to expand abroad. South Korea’s five major crypto exchanges continue to operate locally within the region despite stiff competition among them.

Industry insiders indicate that the biggest hurdle is regulatory ambiguity. For years now, authorities have not devised clear rules to govern the global expansion of domestic crypto firms. Furthermore, banks have also reportedly refused to offer international remittance requests from virtual asset service providers that seek to establish bases outside South Korea, citing money laundering concerns.

At the same time, South Korean investors face fewer pain points using global platforms such as Coinbase, which offers a more diverse service, such as derivatives.

Dessislava Ianeva-Aubert, a senior research analyst at Kaiko, a crypto data tracker company, said, “Now, with regulated U.S. exchanges entering the perps (perpetual futures) space, Korean exchanges risk falling further behind unless domestic regulatory structures evolve, and they aggressively expand both their product suite and infrastructure to compete at a global level.”

According to experts, the future of South Korean exchanges going global depends on the Korean authorities bringing virtual asset businesses under existing frameworks.

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