Crypto reform takes a back seat in South Korea amid regulatory uncertainty, no BTC ETF plans in sight

South Korea’s People Power Party has decided to delay its intentions to relax cryptocurrency regulations indefinitely. 

This shift includes halting the initiative to lift the prohibition on domestic spot Bitcoin exchange-traded funds (ETFs), a move initially anticipated by market watchers. The decision, as reported by local media, stems from the challenges in achieving consensus with governmental and financial bodies on the framework for cryptocurrency policies.

The party had been evaluating proposals to postpone the taxation on virtual assets for an additional two years and to enable corporate investments in digital assets. However, these proposals were not advanced to the stage of formal pledges. The lack of comprehensive consultation with relevant governmental ministries and concerns over potential significant financial losses, particularly with respect to corporate engagement in the cryptocurrency market, were cited as primary reasons behind this move.

Earlier this month, there were indications that the People Power Party was poised to make significant policy announcements regarding the deferral of crypto taxation and the facilitation of institutional cryptocurrency investments. The party’s pivot away from these initiatives signifies the challenges of aligning policy proposals with the broader regulatory and economic considerations inherent in the rapidly evolving digital asset space.

On the contrary, the opposition Democratic Party has proceeded to outline its cryptocurrency policy objectives, marking a clear policy divergence between the two major political forces in the run-up to the forthcoming general election slated for April 10.

In January, South Korea’s financial regulator reiterated its ban on financial institutions issuing cryptocurrency ETFs. This decision was based on the view that digital assets do not meet the traditional definitions of underlying assets as outlined in the Capital Markets Act. This regulatory environment continues to limit local investors’ direct engagement with spot crypto ETFs, although access to foreign crypto futures products is maintained.

South Korea’s Financial Supervisory Service (FSS) is taking proactive steps to align with international standards on cryptocurrency regulation, particularly focusing on the intricacies of spot Bitcoin ETFs. The FSS, under the guidance of Chief Lee Bok-hyun, is slated to engage in strategic discussions with the United States Securities and Exchange Commission (SEC). 

These talks aim to glean insights and guidance on the regulatory framework for spot Bitcoin ETFs. As part of its 2024 business strategy, the FSS plans to conduct meetings in major financial centers, including New York, to delve into discussions about South Korea’s stance on cryptocurrency regulation and the potential for recognizing non-fungible tokens (NFTs) as virtual assets.