|
Getting your Trinity Audio player ready...
|
Key Takeaways:
- South Korea’s FSS advised local asset managers to limit exposure to crypto firms in ETFs, citing Coinbase and MicroStrategy as examples.
- Passive ETFs may struggle to comply without index changes, sparking debate about regulatory fairness.
- Despite cautionary measures, South Korean institutions are increasingly allocating ETF capital to crypto-related equities.
South Korea’s Financial Supervisory Service (FSS) has issued a cautionary note to local asset managers, advising them to limit exposure to crypto-related firms like Coinbase and MicroStrategy in their exchange-traded funds (ETFs). The guidance, which was informal and not legally binding, comes amid growing concerns over unchecked allocations to crypto stocks by domestic funds.
According to The Korea Herald, this advisory aims to encourage responsible fund structuring until a more robust regulatory framework is introduced.
Passive ETFs Face Limitations in Stock Removal
Despite the advisory, the practical impact appears minimal due to how passive ETFs operate. Since these funds mirror external indices, removing a specific stock—such as Coinbase—without formal changes from index providers could result in significant tracking errors.
“Since we track the index directly, removing a stock without an index change could result in large tracking errors,” one fund manager told The Korea Herald. “We understand the regulatory stance but cannot respond immediately.”
Domestic Exposure Growing Despite Warnings
South Korean ETFs have seen a surge in allocations to crypto-focused stocks. For example, the Ace US Stock Bestseller ETF by Korea Investment Management holds Coinbase at a hefty 14.6%. The KoACT Nasdaq Growth Active ETF holds 13.4% combined in Coinbase and MicroStrategy, while the KoACT Global AI & Robotics Active ETF includes 10.3% Coinbase exposure.
These increasing figures reflect strong institutional interest in crypto equities—even as local financial institutions remain legally restricted from directly holding cryptocurrencies or using them as collateral.
Industry Pushback Highlights Global Discrepancies
Some industry participants have questioned the fairness and effectiveness of such domestic-focused advisories, especially when South Korean investors can access similar exposure via US-listed ETFs.
“Restricting domestic ETFs won’t stop capital flows. Investors are already going around these rules via U.S. products,” said an anonymous source.
Also Read: Upbit Faces $131.5 Billion Fine for KYC Breaches as South Korea Tightens Crypto Crackdown
The FSS’s cautious stance contrasts with recent signals of increasing regulatory openness. South Korea’s Ministry of SMEs and Startups has proposed lifting crypto firm exclusions from tax breaks and support schemes.
Additionally, several major banks have filed stablecoin trademarks, and the Bank of Korea is backing plans for a won-pegged stablecoin by 2026, potentially to be issued by a consortium of eight domestic banks.
Disclaimer: The information in this article is for general purposes only and does not constitute financial advice. The author’s views are personal and may not reflect the views of Chain Affairs. Before making any investment decisions, you should always conduct your own research. Chain Affairs is not responsible for any financial losses
I’m a crypto enthusiast with a background in finance. I’m fascinated by the potential of crypto to disrupt traditional financial systems. I’m always on the lookout for new and innovative projects in the space. I believe that crypto has the potential to create a more equitable and inclusive financial system.
