South Korea Maintains Crypto ETF Ban Despite US Approval

south koreean flag with a bitcoin and etf depictions stamped 'banned'

The U.S. approval of a spot Bitcoin ETF may signal a new era for cryptocurrency acceptance, but don’t expect South Korea to follow suit. The South Korean government has reiterated its ban on crypto ETFs, highlighting the diverging regulatory approaches to this emerging asset class worldwide.

Ban on ETFs Remain

South Korea has reaffirmed its ban on cryptocurrency exchange-traded funds (ETFs) despite the recent approval of spot Bitcoin ETFs in the US. The country’s top financial regulator, the Financial Services Commission (FSC), said that the US decision would not affect its stance on crypto ETFs, which it considers risky and unstable.

The FSC has been imposing strict restrictions on crypto-related activities since 2017, when it banned financial institutions from investing in cryptocurrencies and prohibited the launch of crypto ETFs. The regulator does not recognize cryptocurrencies as financial assets and has expressed concerns over market manipulation, fraud, custody, and investor protection.

FSC isn’t Budging

The FSC’s position contrasts with the US Securities and Exchange Commission (SEC), which approved 11 spot Bitcoin ETFs on Wednesday, Jan. 10, 2024. Spot Bitcoin ETFs are investment vehicles that track the price of Bitcoin by holding the actual tokens in a secure digital vault.

However, the FSC said that it would not follow the US example and would continue to uphold its ban on crypto ETFs. The regulator said that it would monitor the developments in the global crypto market and cooperate with other regulators to ensure market stability and investor protection.

Protecting The Domestic Stock Market

According to the Korean publication,

An official from the financial authorities said, “The reason the U.S. financial sector did not collapse when the virtual asset market plummeted was because it prohibited financial institutions from investing in virtual assets (like in Korea),” adding, “The SEC also reluctantly allowed virtual asset ETFs on a limited basis in response to the court decision. “If investment in virtual assets is recognized, the demand base of the domestic stock market may actually weaken,” he said

A Regulatory Framework in the Works

The FSC’s decision reflects South Korea’s cautious and conservative approach to regulating the cryptocurrency industry, which has been marred by several scandals and controversies, such as the collapse of crypto exchange FTX in November 2022 and the fraud cases of Hounax and JPEX in the city. The country is also developing a comprehensive two-part crypto regulation framework, which will focus on the intricacies of cryptocurrency trading and ownership, as well as the guidelines for issuing, listing, and delisting cryptocurrencies.

The government’s rationale centers around protecting investors, particularly retail participants, from the inherent risks of this volatile asset class. Concerns about potential money laundering and illicit activities within the crypto space also play a role in shaping South Korea’s strict regulatory framework.

At Odds With the Global Trend

However, the decision not to follow suit on spot ETFs doesn’t preclude all cryptocurrency activity in South Korea. Individuals are still allowed to buy and sell cryptocurrencies on domestic exchanges, and a robust trading ecosystem thrives within the country.

Nevertheless, the South Korean government’s stance puts it at odds with a growing global trend towards greater crypto acceptance. The U.S. SEC’s approval paves the way for increased institutional investment in Bitcoin, potentially propelling its mainstream adoption. Other major economies like Singapore and Hong Kong are also actively exploring ways to regulate and integrate cryptocurrencies into their financial systems.

A Cautious Approach

South Korea’s decision not to budge on spot ETFs highlights the complexity surrounding cryptocurrency regulation worldwide. While some nations are embracing the potential of this nascent asset class, others remain cautious, prioritizing investor protection and financial stability. This divergence in regulatory approaches underscores the challenges and uncertainties surrounding the future of cryptocurrencies in the global financial landscape.

Author: Jinka

Jinka is a self-trained crypto journalist, passionate about happenings in the industry.