Despite the high demand in South Korea for spot crypto ETFs, these financial products remain out of reach, even as the US Securities and Exchange Commission (SEC) recently approved funds linked to the price of Ethereum.
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Spot Crypto ETFs
On May 23, the SEC approved eight spot Ether ETFs, which may begin trading later this year. This decision followed the SEC’s groundbreaking approval of spot Bitcoin ETFs four months earlier. In stark contrast, South Korea, a nation known for its enthusiastic cryptocurrency market, still faces significant hurdles before spot crypto ETFs become available to local investors.
In the first quarter of this year, the Korean won became the most widely used currency globally for trading crypto on centralized exchanges, achieving a cumulative trade volume of $456 billion, surpassing the US dollar volume of $445 billion. However, despite this high trading volume, local authorities remain cautious.
Bitcoin Based ETFs and South Korea’s FSC
When Bitcoin-based ETFs were listed in the US, expressed concerns were expressed by South Korea’s Financial Services Commission (FSC) that brokering spot crypto ETFs might conflict with the government’s stance.
The Capital Market Act in South Korea does not currently recognize virtual assets as underlying assets for securities. Industry experts believe that spot crypto ETFs could be introduced if the FSC broadens the definition of underlying assets, but they argue that revising existing laws is essential.
A significant issue is clarifying the role of custody. Unlike futures-based crypto ETFs, fund issuers of spot ETFs must hold custody of the cryptocurrencies through contracts with exchanges or other service providers.
Some research fellows have warned that without legal revisions, permitting spot crypto ETFs could result in legal disputes and market chaos. He urges the National Assembly to expedite the law revision process in collaboration with financial regulators to enable Korean financial investment businesses to launch competitive products globally.
Political Support and Future Prospects
To appeal to the crypto-enthusiastic public and secure votes, both major political parties in South Korea have expressed intentions to adopt crypto-friendly policies. The ruling People Power Party has pledged to prioritize establishing a regulatory framework for virtual assets, while the opposition Democratic Party of Korea aims to enable local financial institutions to offer spot crypto ETFs.
https://twitter.com/simplykashif/status/1787809235654279418
Despite the firm stance against spot crypto ETFs, local authorities are closely monitoring the rapidly growing crypto market. The FSC plans to establish a dedicated division to oversee virtual assets, separate from the existing Financial Innovation Bureau. This new division will focus on policies aligned with the upcoming Act on the Protection of Virtual Asset Users, set to be enacted in July.
Conclusion
To conclude, despite high demand and political support, the launch of spot crypto ETFs in South Korea faces significant regulatory challenges. As global competition intensifies, timely legal revisions and proactive regulatory measures are crucial for South Korea to seize emerging opportunities in the crypto ETF market.
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