South Korea Reassesses Bitcoin ETF Prospects as Japan Shifts Crypto Policies

Tags: bitcoin etf, regulation, south korea

Key Takeaways:

• Like other nations with historical ties to Japan, South Korea closely watches Japan’s changing crypto policies, especially those related to Bitcoin ETFs.
• Bitcoin ETFs, widely successful globally, may force South Korean regulators to change their minds.
• In South Korea, however, the path to approval for a Bitcoin ETF is fraught with internal debates and regulatory challenges.

As investment products surrounding crypto-assets see a global surge and Japan embraces a new regulatory environment, South Korea is considering its next steps towards Bitcoin (BTC) Exchange Traded Funds (ETFs). Now, South Korea is reportedly monitoring its neighbor closely. Traders speculate that Seoul is likely to follow Tokyo’s decision on crypto ETFs.

Why Is South Korea Turning Its Attention Toward Japan?

Japan, which had been extremely skeptical of digital assets, is now contemplating a major policy overhaul. In February, Nikkei reported the FSA is considering designating cryptocurrencies as financial products alongside traditional securities, and possibly allow crypto ETFs.

News of the potential policy change is drawing attention across Asia. Japan’s move is reportedly influencing South Korea’s Financial Supervisory Service (FSS), which has shared its analysis of Japan’s legislative trends on digital assets with relevant institutions in South Korea. This indicates a significant level of interest in Japan’s policy changes.

Japan’s talks are expected to drag into the first half of 2025 before a legislative plan is drafted and submitted to the National Assembly in 2026, but even the mention of them is enough to rouse debate in South Korea.

The Global Bitcoin ETF Boom

The success of Bitcoin ETFs in the U.S. is no longer ignorable. During their first year of trading these 12 ETFs have raked in over $35 billion of inflows, according to SoSoValue data. This comes as institutional investors embrace crypto and speculative talks rise about local crypto ETFs in Korea.

A Cautious Approach From South Korea

Amid the excitement, South Korea is keeping its guard up. “I have continued to say that I would carefully review (spot Bitcoin ETFs), and it is similar in the broader context. There are countries that have not yet introduced it. There are England and Japan,” Kim So-young, vice chairman of South Korea’s Financial Services Commission, said after a virtual asset committee. Some nations, such as England and Japan, have yet to introduce this.

Of course, there’s South Korea’s track record with strict crypto regulations. In the meantime, last year, the Financial Supervisory Service (FSS) imposed restrictions on asset managers offering ETFs linked to crypto-related companies, such as Coinbase. This more cautious stance is somewhat in line with South Korea overall’s outlook on cryptocurrency, which has seen both excitement from the public and skepticism from officialdom.

The Financial Supervisory Service (FSS)

Hurdles Remain

Regulatory headwinds in South Korea are still a major hurdle. CryptoQuant CEO Ki Young Ju likened South Korea’s cautious approach to crypto regulation to that of the US SEC, where Gary Gensler stalled the approval of crypto ETFs for a decade until 2024.

On top of that, South Korea is facing political instability, which could hinder or delay substantive policy actions on cryptocurrency for the time being. Former president Yoon Suk Yeol was arrested earlier this year after trying to impose martial law — a possible sign of instability.

Examining the Crypto Oscillation of South Korea

The government has thus to walk a tightrope between encouraging innovators and protecting asset owners, with more than 30% of South Korean citizens investing in crypto assets. While it offers potential risks, regulators are carefully evaluating the impact of a volatile crypto market.

The Financial Services Commission previously announced that the universities and charities will be able to sell cryptocurrency donations starting from the second half of 2025. Meanwhile, Upbit, South Korea’s largest cryptocurrency exchange, was also served with a suspension notice for possible Know Your Customer violations. Upbit has apparently also lodged a complaint against South Korea’s Financial Intelligence Unit to rescind the business penalties. It illustrates an ongoing struggle to gain control of the industry.

The Interplay Between Global Market Forces & Local Innovation

To revive its capital markets, South Korea’s Exchange Chairman, Eun-Bo Jeong, is keen on launching crypto-based ETFs this year.

South Korea’s financial markets lagged global peers as the domestic economy was contracting and export growth had been slowing, Jeong pointed out. The soaring success of Bitcoin ETFs worldwide has led to a quest for solutions to these challenges, including cryptocurrency-based ETFs.

South Korea’s Crypto ETFs and What Lies Ahead

South Korea is at a crossroads. While pushing an ETF has proven to be an uphill battle, the global momentum behind Bitcoin ETFs and potential regulatory changes in Japan have pressured Seoul to reconsider its stance. It is worth noting just how influential other countries’ decision-making processes are within the South Korean government. Other countries have significantly influenced various sectors of the South Korean economy. For instance, many believe that the early development of South Korea’s auto industry was shaped by the American auto sector.

But there are still internal debates and regulatory hurdles. It remains to be seen, however, how any final decision will factor in South Korea’s need to be competitive within the global financial ecosystem against the desire of the country’s government to safeguard its investors from the dangers posed by crypto-assets.

South Korea Opens Doors to Corporate Crypto Investments: A Big Market Shift

Who Could Be the Next Innovators in ETF Evolution

Market participants expect even more innovation in the ETF space. According to Nate Geraci of the ETF Store, this could include the possibility of combined Bitcoin and Ethereum ETFs, ETH funds offering staking options, and more access on the ETF front for broader diversification using assets like Solana. These products could be a deciding factor in the approval of ETFs in South Korea.

Ultimately, according to experts, there is still uncertainty in the future of Bitcoin ETFs in South Korea. But the ongoing developments in Japan — and the global success story of Bitcoin ETFs — have certainly placed the issue firmly back on the table.