South Korea Slams Crypto-Only ETFs—Coinbase & Strategy Caught in Regulatory Crossfire
Regulators just fired a warning shot across the bow of crypto ETFs. South Korea’s Financial Services Commission (FSA) dropped the hammer on portfolios overweight in digital assets—and guess who’s sweating? Coinbase and Strategy find themselves in the hot seat as authorities crack down on speculative risks.
The Compliance Gut Punch
No more hiding behind ‘diversified’ labels. The FSA’s new guidance explicitly targets funds with heavy crypto exposure, calling them ticking time bombs for retail investors. Analysts whisper this could freeze ETF approvals for months—just as institutional interest was heating up.
Crypto’s Institutional Paradox
Irony alert: The same Wall Street players who spent years mocking Bitcoin now face backlash for embracing it too hard. One FSA official quipped (off-record, obviously) about ‘hedge funds treating altcoins like a roulette wheel.’ Ouch.
What’s next? Either Coinbase pivots faster than a DeFi exploit patch, or watch Korea’s ETF market become crypto’s newest ghost town. Because nothing says ‘financial innovation’ like regulators slamming the brakes—again.
Why has the FSS issued this instruction now?
The FSS stated that, despite ongoing discussions around reform, regulated financial institutions must follow existing guidelines until new laws are formally adopted. The 2017 administrative notice prohibits such institutions from directly holding, purchasing, or investing in virtual assets or companies primarily involved in the sector.
The recent advisory was prompted by a noticeable uptick in domestic ETFs allocating large portions of their portfolios to crypto-exposed firms.
As an example, the Korean Herald referenced Korea Investment Management’s ‘ACE U.S. Bestseller ETF’, which holds over 14% in Coinbase shares, adding that several other active and passive funds have similarly high concentrations in related companies.
Officials have acknowledged that passive ETFs cannot easily remove specific stocks unless the underlying index changes. Still, they urged firms to be cautious in designing new ETF products.
The FSS said the intention was to prevent overexposure ahead of a formal regulatory overhaul.
Yet, the timing of the directive is notable since South Korea has already begun loosening its grip on institutional crypto access. As previously reported by crypto.news South Korean regulators have agreed to phase out the country’s de facto ban on institutional crypto trading.
Last month, nonprofit entities were permitted to liquidate donated crypto assets. Public companies and professional investors are expected to gain similar permissions in the second half of 2025.
What is South Korea’s stance on crypto ETFs?
South Korea has long maintained a cautious approach to crypto ETFs. Although retail investors are allowed to access foreign crypto-linked ETFs, local firms have been restricted from offering similar products.
However, since the U.S. and other major markets shifted toward more crypto-friendly policies, South Korea has begun recalibrating its stance. Last month, the Financial Services Commission submitted a new digital asset roadmap that included provisions to legalize spot crypto ETFs in the second half of the year.
Additionally, the People Power Party and the ruling Democratic Party have both supported legalizing crypto ETFs. The parties have backed bills enabling spot ETF trading and pledged to dismantle restrictive policies, such as the “One Exchange, One Bank” rule that limited partnerships between exchanges and financial institutions.
Much of this momentum has been accelerated following the election of President Lee Jae-myung, who has been a strong advocate for crypto sector reform. During his campaign, he pledged to legalize spot Bitcoin ETFs and expand institutional participation.
His administration has since moved to institutionalize crypto assets by introducing regulatory clarity and pushing for lower trading costs to attract younger investors.
