South Korea’s Financial Supervisory Service (FSS) is advising local fund managers to reduce exposure to crypto-related stocks. The guidance specifically targets ETFs holding companies such as Coinbase and MicroStrategy, reflecting the regulator’s cautious stance amid a shifting digital asset landscape.
FSS Reiterates Caution Against Crypto Exposure
The FSS has issued a new directive asking domestic ETF managers to rebalance their portfolios. The instruction emphasizes a reduction in holdings of stocks linked to the crypto market, including Coinbase (COIN) and MicroStrategy (MSTR). According to a report by the Korea Herald, the regulator warned asset managers not to “excessively include” crypto-themed stocks in ETF structures.
The FSS cited its 2017 guidelines, which prohibit financial institutions from investing directly in virtual assets. The agency reminded firms that these rules remain in effect and must be adhered to. An FSS official stated that “existing guidelines should be followed until the new system is complete,” indicating that new digital asset laws are still under development.
Regulatory Pressure on Crypto-Themed ETFs Increases
South Korea’s ETF market currently includes over 1,000 funds, many of which are increasingly exposed to crypto-related equities. Some ETFs have invested more than 10 percent in businesses dealing with digital assets. As an example, ACE US Stock Bestseller ETF is said to have 14.59% invested in Coinbase. Coinbase and MicroStrategy each have a proportion of 7.44% and 6.04%, respectively, of the KoACT US Nasdaq Growth Company Active ETF.
The decision by the regulator is because it is worried about the increasing investments in crypto-linked businesses in conventional financial instruments. Despite such recent attempts by South Korea to classify crypto firms as venture companies, implying it is done on a trial basis, the move by the FSS evinces a lack of willingness to introduce them to further institutional experience. The threat follows as the nation eagerly awaits the passing of an extensive digital asset legislation.
Industry Response and Market Dynamics
Participants in the market and ETF managers have raised concerns about the FSS directive. The industry representatives maintain that most of the passive ETFs hope to match an index performance and cannot weed out particular stocks on their own. They have added that enforcement of rules on local ETFs stops the uneven playing field, as the investors will still have access to exposure via United States-based ETFs.
There are even investors who doubt the success of these measures, pointing out that the capital can easily go to overseas markets. Regulatory policy at home is still conservative, although some progress has been made in recent years in policy-making, such as the election of a pro-crypto president.
In the meantime, Parataxis Holdings has projected to open a Bitcoin Treasury business, the initial one in South Korea. This institutional interest in the digital asset sphere has even been demonstrated by the fact that a biotech company, Bridge Biotherapeutics was acquired by an institutional investor to the tune of 18.5 million dollars.
