South Korea’s FSS Advises Caution on Coinbase Exposure in ETFs Amid Evolving Crypto Regulations

Key Points

1. The FSS issued informal guidance urging asset managers to limit exposure to crypto-linked ETFs, citing concerns over overexposure, such as Korea Investment Management’s ETF holding over 14% in Coinbase shares.

2. South Korea maintains a conservative stance on crypto ETFs but is gradually liberalizing institutional crypto investment, with plans to allow institutional crypto investment by mid-2025.

3. The FSS acknowledges challenges for passive ETFs in excluding specific crypto-related stocks without altering product design to comply with regulations.

4. The government is balancing regulatory caution with market evolution, as seen in bipartisan support for easing restrictions like the 'One Exchange, One Bank' rule.

5. The FSS’s guidance aims to align ETF holdings with regulatory expectations while South Korea transitions toward a more open crypto market.