South Korea and Morgan Stanley Warm Up to Digital Assets as Donald Trump's Presidency Nears

South Korea's top stock exchange is considering adding digital asset spot exchange-traded funds (ETFs) to its product suite to revive investor interest

South Korea’s top stock exchange and one of America’s largest asset managers are considering adding digital assets to their product suites in a bid to capitalize on the shifting political landscape and the expected influx of investors.

South Korea’s Stock Exchange Considers Digital Asset Spot ETFs, STOs

Several stock exchanges have explored digital asset exchange-traded funds (ETFs) in recent years. In the U.S., the Securities and Exchange Commission (SEC) finally approved the first batch of BTC spot ETFs in January this year.

Since then, other exchanges have launched their own ETFs. For instance, Thailand‘s Stock Exchange of Thailand began trading physical bitcoin and ether ETFs in May. Hong Kong Exchanges and Clearing also launched two digital asset ETFs in March.

Now, South Korea’s top stock exchange is considering adding digital asset spot ETFs to its product suite. The bourse is also exploring security token offerings (STOs).

Jeong Eun-bo, the chairman of the Korea Exchange (KRX), revealed recently that the bourse is exploring new business avenues, such as ETFs, to revive the sector.

“We will benchmark overseas cases for new businesses such as virtual currency ETFs and explore new areas in the capital market,” the bourse chief said.

The bourse is pivoting to new strategies as trading activity at KRX has declined significantly this year. In early December, President Yoon Suk Yeol declared martial law, which led to his impeachment (and his successor’s) by parliament within days. The country is now being headed by Finance Minister Choi Sang-mok as the acting president and acting prime minister.

These scandals, paired with global political and economic shakeups, have led to a steep decline in the trading activity at KRX. Eun-bo believes that the exchange must reinvent itself to bring investors back to Asia’s sixth-largest stock exchange.

However, South Korea has been conservative when it comes to approving digital asset ETFs. Despite the rise of these ETFs in Asian and North American markets, Korea, Japan, and some other major economies have steered clear.

Last year, experts at the Korea Institute of Finance warned against the ETFs, which they claimed posed a “significant risk to investors and could undermine financial stability.”

However, ETF approval would align with campaign pledges made by the opposition Democratic Party in the lead-up to this year’s elections, where it won by a landslide. Legislators from the party claimed they would request financial regulators reconsider ETFs, failure to which they would amend existing capital markets laws.

In related news, the Financial Services Commission (FSC) is considering approving STOs. Speaking at the same event, FSC Chair Kim Byung-hwan revealed that the authority is exploring the matter.

“We will institutionalize STO (tokenized securities) […] to diversify the securities issuance and distribution system … We will reorganize the entire system so that comprehensive financial investment businesses can be faithful to their original role of providing corporate finance and venture capital.”

Kim further implored the government, parliament, and corporate investors to work together to revive the market.

“The government, the National Assembly, and the financial industry should join forces to restore the vitality of the capital market and propel the Korean economy forward.”

South Korea’s digital asset market is still awaiting taxation. A new law that imposes a 20% tax on digital asset profits was meant to take effect in 2020, but a series of politically-motivated postponements have pushed it to 2027.

Despite the challenges, South Korea remains one of the world’s largest digital asset markets. Studies have found that over six million South Koreans trade digital assets, representing over 12% of the population.

Morgan Stanley Considers Digital Assets on E*TRADE

Meanwhile, in the U.S., one of the country’s largest asset managers is considering adding digital assets to its online brokerage platform.

According to The Information, which first reported the story, Morgan Stanley is considering adding digital assets to E*TRADE. The move would come as the asset manager expects a surge in digital asset investment once Donald Trump takes over as the new U.S. president later this month.

The Republican president-elect has pledged to implement a friendly framework that makes the U.S. the global “crypto” capital.

E*TRADE is one of the leaders in online brokerage in the U.S., offering stocks, bonds, mutual funds, retirement accounts and more. Morgan Stanley acquired the platform in 2020 for $13 billion.

At the time, E*TRADE boasted over five million accounts and over $360 billion in assets. It’s not the first time E*TRADE explores digital assets.

In 2018, the online brokerage platform was considering digital currency products, but regulations were more restrictive. Discussions about Morgan Stanley’s acquisition also got in the way.

Effectively, E*TRADE missed out on a massive opportunity as others, like Robinhood (NASDAQ:HOOD