Bitcoin ETF Momentum Grows in South Korea as Rules Lag

• Korea Exchange says it is operationally ready to support Bitcoin ETFs.
• Current securities laws still block crypto ETFs in South Korea.
• Growing political and industry support increases pressure for regulatory reform.

Momentum for Bitcoin exchange-traded funds continues to build in South Korea, even as regulatory approval remains out of reach. The country’s main securities and derivatives operator, the Korea Exchange, has signaled that it stands ready to support crypto-linked investment products once regulators give the green light.

Speaking at the first trading day ceremony of the new year, KRX chairman Jeong Eun-bo said the exchange plans to expand its lineup of investment products, including crypto ETFs and derivatives. “The exchange has put operational work into this product, despite the fact that it is not yet certain that this type of product is legal under securities regulations as they stand today,” he said.

According to Jeong, this initiative is a move to reform the capital markets in South Korea and thus eliminate the existing “Korea discount,” whereby Korean assets are traded at a discount to their international counterparts. Although this is not the case for cryptographic assets, Korean exchanges have been known to trade bitcoin at a premium.

Moreover, Jeong pointed out supporting initiatives like partial extension of trading hours and readiness for digital finance. Such efforts clearly indicate that the primary obstacle for crypto ETFs has ceased to reside in the infrastructure of the markets.

Infrastructure ready, regulation undecided

KRX’s comments come as regulators are still torn about the place of crypto assets in the regulation framework in the South Korean financial system. Currently, the regulation of crypto assets does not recognize them as qualified underlying assets. This has meant that the BTC and ETH ETFs are shut down even as demand rises.

The Financial Services Commission has acknowledged the challenge and previously said it is studying possible reforms through a dedicated crypto committee. These discussions include whether lawmakers should recognize digital assets under the Capital Markets Act.

While regulators weigh their options, KRX’s messaging sends a clear signal. The exchange wants to act as quickly as possible once the legal barriers are cleared by policy-makers. The exchange places itself ahead of the curve by making its intentions publicly known before the matter is finalized.

This strategy also symbolizes the increased cooperation between market participants and regulators. Despite the fact that new regulation policies were not provided in the speech made by Jeong, the tone indicated that discussions were ongoing on how the crypto industry might be incorporated into the conventional finance industry.

Political and industry support builds

The popularity of crypto ETFs has steadily been on the rise in South Korea’s financial industry. In February, the head of the Korea Financial Investment Association said the industry would push for domestic listings of Bitcoin and Ether ETFs to meet demand for regulated crypto exposure.

Soon after, the issue moved into mainstream politics. In May, Lee Jae-myung, then the Democratic Party’s presidential front-runner, pledged to approve spot crypto ETFs if elected. He later won an election, which increased expectations that his policies might change.

However, despite these indications, approvals have remained in suspension. The regulatory bodies continue to express caution in response to similar proposals on investor protection, amongst other issues. Indeed, as infrastructure upgrades unfold and the evidence of building political support mounts, the pressure is now on for a regulatory decision.

Outlook remains uncertain

For now, it means South Korea is sitting in a holding pattern: market operators are ready to go, investors are waiting, and regulators debate. If policymakers shift to revise securities laws, crypto ETFs and derivatives could be launched on KRX rapidly.

Until then, momentum for a Bitcoin ETF will most likely continue to build underneath the surface. For now, the difference between being operationally ready and regulatory permission on offer is the key determinant in setting South Korea’s next move in crypto finance.

Highlighted Crypto News:

Bithumb to Launch Third Dormant Asset Recovery Drive