South Korea’s Financial Services Commission (FSC) is reviewing its long-standing ban on spot cryptocurrency ETFs.
This review could see the regulator list the existing ban on crypto spot trading, introducing a significant policy shift. The FSC is also considering allowing institutional accounts on cryptocurrency exchanges.
These updates shift from South Korea’s previously strict stance on digital assets in traditional financial markets. The decision follows global trends, especially after the U.S. approved spot Bitcoin ETFs in January.
New Cryptocurrency Committee Takes Action
According to reports from news outlet News1, a newly formed cryptocurrency committee within the FSC is responsible for evaluating the ban.
Notably, this committee was established to advise on digital asset policies. It will assess the feasibility of lifting the restrictions, considering both opportunities and risks.
Though the FSC previously maintained its position against crypto ETFs, it now seems more open to reconsidering. This shift highlights growing pressure on regulators to adapt to changing market conditions.
Since 2018, institutional investors in South Korea have been restricted from opening cryptocurrency trading accounts.
Despite rising global interest, institutional investors have limited participation in the crypto market. The review could encourage more involvement.
While South Korea has remained cautious, this recent development could open the door for more local crypto exposure.
Political Pressure for Regulatory Change
Political forces are also pushing for a change in the regulatory landscape. Both the ruling Democratic Party and the opposition have supported the verification of local spot Bitcoin ETFs.
During their recent election campaigns, both parties pledged to review the ban. The Democratic Party has even formally requested the FSC to reconsider its stance.
This political backing and increasing market demand have likely influenced the regulator’s decision.
South Korea‘s crypto market continues to grow, and the government faces increasing pressure to modernize its regulations. While the review is a step forward, it’s unclear how quickly changes will be implemented. The FSC is expected to proceed cautiously, weighing the risks associated with volatile markets.
Upbit’s Market Dominance Under Scrutiny
In addition to reviewing the ETF ban, FSC Chair Kim Byung-hwan has raised concerns about market competition. The FSC has opened an investigation on Upbit, the largest crypto exchange in South Korea, which controls over 61% of the market.
Upbit’s market share hit an average monthly high of 80% in March, sparking concerns about its monopolistic influence. During a recent audit, lawmaker Lee Kang-il brought attention to Upbit’s partnership with K-bank.
South Korean regulations require crypto exchanges to hold user deposits with partner banks. Lee warned that Upbit deposits account for 20% of K-bank’s total deposits, posing potential risks to the bank’s stability. A “bank run” could occur if the partnership were disrupted, potentially harming K-bank and the broader financial market.
K-bank, one of South Korea’s earliest digital banks, is planning an initial public offering (IPO). However, its reliance on Upbit’s deposits raises concerns about its financial stability. Analysts have pointed out that K-bank’s heavy dependence on Upbit might pose challenges for its upcoming IPO.
South Korea’s crypto market could change significantly in the coming months. The FSC’s decision to review the ETF ban and institutional account restrictions shows a shift toward modernization. However, concerns about market dominance, particularly Upbit’s influence, remain a key issue.
