While the world is gradually opening up to digital assets, especially when crypto spot ETFs are approved in the US and Europe, South Korea – one of the most vibrant crypto markets in the world – suddenly sent out the opposite signal.
FSS Tightens, FSC Opens – Policy Paradox in Korea
Recent, Financial Supervisory Service (FSS) – the executive arm under authority Financial Services Commission (FSC) – has asked domestic asset management firms to limit their exposure to crypto-related companies such as Coinbase and Strategy. The directive was communicated “verbally,” without a formal written document, to emphasize compliance with guidance from 2017, which prohibits financial institutions from investing directly or indirectly in virtual assets.
The move was immediately controversial, with financial institutions arguing that it was unfair that individual investors would still be allowed to buy US crypto ETFs while domestic institutions were constrained by an outdated regulation.
Meanwhile, FSC is pushing for a more open path to digital assets:
- From Q2/2025: Non-profit organizations, universities, research institutes, and public agencies are allowed to trade crypto under a pilot regulatory framework.
- From Q3/2025: Open to more than 3,500 public companies and professional investors – the first step in legalizing institutional participation.
- Late 2025 – early 2026: South Korea plans to allow the issuance and listing of crypto spot ETFs on the Korea Exchange.
If this roadmap is implemented as planned, South Korea could become one of the pioneering countries in Asia in “legitimizing” crypto spot ETFs.
South Korean Crypto Market – Huge Potential Despite Tight Policy
According to Bank of Korea, by the end of 2024 there will be 18.25 million crypto investors, roughly equivalent 1/3 of the population. Data from Signzy shows that 9.7 million Koreans traded on crypto exchanges in 2024 and this number is expected to increase 12.4 million by the end of 2025.
Korean investors are known for their high risk appetite, especially with altcoin, creating a vibrant trading ecosystem that directly affects global market prices.
To control risks, Korea has implemented Virtual Asset User Protection Law (07/2024), requiring exchanges (VASPs) to:
- Ensure ISMS, real identity bank account;
- Report suspicious transactions;
- Manage custodial wallet and property insurance;
- From 2027, personal income tax applies to crypto trading profits.
Crypto Future in South Korea – Step Back or Stepping Stone?
The current policy paradox may be temporary, as the new President Lee Jae-myung has pledged to pave the way for Bitcoin ETFs and won-backed stablecoins. In parallel, the ruling party is also introducing a bill “Basic Digital Asset Act” – an important foundation for shaping a clear legal framework for this market.
The short-term tightening of the FSS can be seen as a buffer to protect the financial system before new regulations are enacted. However, without unity among regulators, South Korea may miss out on the opportunity to become Asia's leading crypto financial center.
