South Korea’s Financial Services Commission (FSC) is set to reevaluate its ban on local spot cryptocurrency exchange-traded funds (ETFs) and institutional accounts on crypto exchanges, signaling a possible shift in the country’s strict stance on digital asset exposure in traditional financial markets. This move, reported by local news outlet News1, comes as the FSC’s newly formed cryptocurrency advisory committee reviews the current restrictions.
The FSC’s decision marks a significant change from its previous hardline stance, which had reaffirmed a ban on local crypto ETFs even after the U.S. approved spot Bitcoin ETFs earlier this year. The ban was initially justified as a necessary precaution to protect South Korea’s financial markets from potential volatility caused by cryptocurrency assets.
However, growing political pressure may have influenced the FSC’s reconsideration. Both the winning Democratic Party and opposition parties have pledged to push for the approval of local spot Bitcoin ETFs during their general election campaigns. In May, the newly elected left-wing party formally requested the FSC to review the ETF ban.
Since 2018, institutional investors in South Korea have been effectively barred from establishing cryptocurrency trading accounts on exchanges, due to the FSC’s stringent regulations.
Upbit’s Market Dominance Under Scrutiny
In addition to the potential policy shift on ETFs, FSC chair Kim Byung-hwan revealed during an audit that the watchdog would also investigate the monopolistic structure of the country’s cryptocurrency exchanges, particularly focusing on the dominance of Upbit. The exchange currently controls over 61% of the country’s daily trade volume and has consistently averaged a market share of 80% in recent months, according to CoinMarketCap.
Democratic Party lawmaker Lee Kang-il expressed concern during the audit about Upbit’s significant influence on K-bank, its partner bank, where deposits from Upbit account for 20% of K-bank’s total deposits. He warned of a potential risk of a bank run if the partnership between Upbit and K-bank were disrupted, further noting that K-bank’s reliance on Upbit could pose challenges for the digital bank’s planned initial public offering (IPO).
As South Korea’s cryptocurrency sector continues to evolve, these developments could lead to significant changes in how digital assets are regulated and traded within the country.
