South Korea Calls on Asset Managers to Decrease ETF Investments in Coinbase, Strategy Aimed at Limiting Foreign Crypto Exposure
In an effort to mitigate foreign crypto asset exposure, South Korea’s Financial Supervisory Service (FSS) has advised local asset managers to restrict ETF investments in companies like Coinbase and Strategy.
As reported by a local outlet in a piece dated 23 July 2025, the FSS emphasized in its communication that affected entities must comply with the ongoing 2017 administrative directive concerning virtual currencies.
An FSS representative was cited, indicating, “Recently, we have observed a trend towards deregulation regarding virtual assets in both the U.S. and Korea, yet no definitive laws or guidelines have been put in place.”
“This implies that existing regulations should continue to be observed until the new framework is established,” the official remarked.
Additionally, the FSS’s guidance also stipulates regulations that forbid financial entities from holding, investing in, or accepting virtual assets as collateral. Regional regulators have banned corporate transactions involving virtual currency in South Korea since 2017.
When the regulation was enacted, concerns regarding money laundering influenced the government’s stance, particularly concerning the increased risks associated with corporate trading compared to retail trading in cryptocurrencies.
The Financial Supervisory Service of South Korea has provided verbal instructions to asset managers:
Limit exposure to crypto-associated stocks like @coinbase & Strategy in ETFs.
Emergency measures for crypto from 2017 remain applicable.#SouthKorea #CryptoRegulation #ETFs #Coinbase pic.twitter.com/UTzRBjvHsh
— The Crypto token Republic (@TCR_news_) July 23, 2025
A representative mentioned, “Despite both U.S. and Korean regulators demonstrating indications of loosening crypto regulations, no specific laws or guidelines have materialized.”
The guidance corresponds with a recent increase in regulatory leniency observed from South Korean authorities. Just weeks prior, the Ministry of SMEs and startups in South Korea suggested removing restrictions that hindered crypto companies from accessing tax incentives and other supportive measures.
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Domestic ETF Restrictions Examined Amid Increased Foreign Crypto Participation
The FSS released its guidance in light of rising worries about a growing number of “coin-themed stocks” including crypto exchanges and crypto mining companies within ETF allocations.
According to the article, various products in South Korea’s domestic ETFs have over 10% of their assets invested in stocks related to virtual assets. For instance, the Korea Investment Trust Management’s ACE US Stock Bestseller ETF has approximately a 14.59% position in Coinbase.
Similarly, the KoACT US Nasdaq Growth Company Active ETF includes a 7.44% stake in Coinbase and 6.04% in Strategy, totaling 13.48% in virtual asset-related equities.
Industry experts have pointed out that these ETFs typically replicate predetermined indices. Additionally, excluding certain stocks may disrupt index performance.
An industry source noted in the report, “If stocks are removed without adjusting the index, the deviation rate could increase significantly.”
“I understand the regulatory perspective, but responding promptly is challenging,” they added.
Moreover, there is escalating concern regarding the focus on domestic ETFs. Crypto market players have noticed that local investors persist in obtaining exposure to crypto stocks through U.S.-listed ETFs.
Another individual quoted in the article remarked, “Limiting solely Korean products will not prevent fund outflows. Many are simply turning to offshore options, which casts doubt on the impact of the policy in practice.”
South Korean Exchanges Find It Hard to Enter Global Markets
With the FSS’s advisory posing barriers for international players wanting to operate in the area, local exchanges are also struggling to grow beyond national borders. The five major crypto exchanges in South Korea continue to operate domestically amid fierce competition among them.
Insiders in the sector suggest that regulatory uncertainty is the primary challenge. For years, regulators have not established clear protocols to govern the global outreach of local crypto firms. Additionally, banks have reportedly denied international remittance requests from virtual asset service providers aiming to establish international operations due to concerns about money laundering.
Meanwhile, South Korean investors encounter fewer obstacles using global services like Coinbase, which provides a wider array of offerings, including derivatives.
Dessislava Ianeva-Aubert, a senior research analyst at Kaiko, a provider of crypto data, stated, “Currently, with regulated U.S. exchanges entering the perpetual futures sector, Korean exchanges risk falling further behind unless local regulatory frameworks develop, and they proactively enhance both their product range and infrastructure to compete globally.”
Experts assert that the international prospects for South Korean exchanges hinge on local authorities integrating virtual asset businesses into existing regulations.
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Key Takeaways
- South Korea’s FSS has advised local asset managers to limit ETF investments in stocks like Coinbase and Strategy to reduce foreign crypto exposure
- The FSS’s regulations include restrictions on financial institutions from holding, investing in, or accepting virtual assets as collateral
- Many products in South Korea’s domestic ETFs exceed 10% of their assets in stocks related to virtual assets
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