South Korea Considers Spot ETF Ban Lift for Crypto Growth

Key Points:

• South Korea’s Financial Services Commission (FSC) is reconsidering the spot ETF ban and institutional accounts, marking a potential shift in regulatory stance.
• Following U.S. spot Bitcoin ETF approvals, South Korean lawmakers from both the ruling and opposition parties advocate for local ETF approval, signalling growing political support for crypto investments.
• Upbit, dominating over 61% of trading volume among licensed exchanges, faces scrutiny over its relationship with K-bank, raising concerns about market stability and potential risks in the crypto banking sector.

South Korea’s top financial regulator, the Financial Services Commission, signals that it will probably soften its stance on cryptocurrency investments, such as the spot ETF ban.

Financial Services Commission Considers Lifting Cryptocurrency ETF Ban

According to local news agency News1, the FSC will reconsider the long-term ban against local spot ETF ban funds or institutional accounts on crypto exchanges. The newly formed cryptocurrency committee, an advisory group intended to formulate policies regarding digital assets, will conduct this review.

This reconsideration comes after the U.S. approved spot Bitcoin ETFs earlier this year, which puts pressure on the FSC to revisit the rigid ban on the local listing of spot ETF ban. The financial regulator previously cited financial market stability as the basis for retaining the ban. However, growing demands from lawmakers have forced a rethink, with the ruling Democratic Party and opposition promising to support the approval of the local spot ETF ban during their election campaigns.

Read more: BitGo Korea Partners With South Korean Giants SK and Hana

Scrutiny on Upbit and Its Banking Partnerships

The FSC’s strict guidelines have kept South Korea‘s institutional investors largely away from the cryptocurrency market since 2018. Lastly, FSC Chairman Kim Byung-hwan says besides reviewing ETF policies, they will study the monopolistic structure of virtual exchanges in South Korea, which is highly dominated by Upbit, which accounts for more than 61% of the trading volume among licensed exchanges in the country.

There are also concerns about Upbit‘s financial relationship with K-bank, one of the first digital banks to debut in South Korea. According to a lawmaker named Lee Kang-il, the deposits coming from Upbit reportedly make up about 20% of all deposits into K-bank-much to the chagrin of potential bank runs in the event of Upbit’s failure. With K-bank contemplating an initial public offering, this relationship puts those ambitions at risk of complication, underlining the tricky connections between traditional finance and the developing cryptocurrency landscape in South Korea.