South Korea Extends Crypto Ban to Virtual Asset Companies, Blocking Coinbase-Focused ETFs

South Korea has kept its crypto regulations in check yet again when it banned Bitcoin spot and futures ETFs thereby blocking funds that invest in virtual asset companies like Coinbase.

South Korea has once again clamped down on cryptocurrency regulations by prohibiting Bitcoin spot and futures exchange-traded funds (ETFs), blocking funds that invest in virtual asset companies such as Coinbase.

According to Ki Young Ju, Founder & CEO of CryptoQuant, these restrictions are intended to protect investors, but critics argue that they are too strict and will prevent the country from keeping up with international trends in digital asset regulation.

Ban Covers Virtual Asset Companies, Not Just Bitcoin

The Financial Supervisory Service (FSS) recently confirmed that ETFs targeting companies with virtual asset-based business models have been rejected. Several asset management firms had planned to launch ETFs that would focus on companies like Coinbase, one of the world’s largest cryptocurrency exchanges.

These funds were reportedly set to launch immediately, but they failed to receive approval. Many domestic asset managers have now halted plans to submit applications for similar ETFs and are closely monitoring the FSS’s next move.

The rejections are said to stem from South Korea’s 2017 “Virtual Currency Emergency Measures,” which prohibit financial institutions from handling virtual assets. This administrative guideline is intended to protect investors, but it has been criticized for lacking a clear legal basis, especially when companies like Coinbase are publicly traded and subject to established financial laws in other jurisdictions.

South Korea’s Approach Differs from Global Trends

Internationally, the regulatory landscape for cryptocurrency-linked investments is becoming more accepting. For example, the U.S. market saw the introduction of leveraged ETFs tied to Coinbase in 2022.

These products have achieved remarkable trading volumes, with recent daily activity exceeding $1 billion. Additionally, cryptocurrency spot ETFs and options trading are now available on American exchanges, highlighting a striking contrast with South Korea's restrictive policies.

By blocking investments in virtual asset companies, South Korea risks diverging from global advancements in cryptocurrency regulation. Critics argue that this approach limits the opportunities available to domestic investors for diversifying their portfolios.

They also point out the inconsistency in applying the 2017 guidelines to publicly traded companies, which could ultimately harm the country's competitiveness in the digital asset market.

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