Legalization of spot ETFs takes center stage as key presidential campaign pledge
Images of the presidential candidates of Korea's three leading parties are overlaid with a Bitcoin illustration. From left are Democratic Party of Korea's Lee Jae-myung, People Power Party's Kim Moon-soo and Reform Party's Lee Jun-seok.
Cryptocurrencies are emerging as a central voting issue in the upcoming June 3 presidential election, reflecting investor enthusiasm for virtual assets, market watchers said Thursday.
Central to the issue is the legalization of spot cryptocurrency exchange-traded funds (ETFs), a long-stalled initiative under the previous administration due to concerns over speculation-dominated market volatility and subsequent declines in the soundness of crypto trading and custody service providers.
If legalized, institutional and retail investors will be able to invest in the virtual assets using only brokerage accounts, without the time-consuming and cumbersome registration with the crypto exchanges.
Also expected are increased crypto holdings by pension funds and asset managers. Currently, Korean financial entities are not allowed to hold cryptocurrencies, meaning their ETF issuance is not possible.
Embracing spot ETFs
Leading presidential candidates of both the ruling People Power Party (PPP) and the main opposition Democratic Party of Korea (DPK) maintain that spot trading should be allowed.
Candidate Lee Jun-seok of the minor conservative Reform Party is seeking to designate ETFs as a key national strategic asset.
DPK’s Lee Jae-myung has pledged to introduce spot ETFs to help the younger generation build wealth.
In a May 6 message on Facebook, Lee said young people will be able to increase their assets, aided by spot cryptocurrency ETFs.
“We will build an integrated market surveillance system. We will seek to lower trading fees on crypto exchanges," he said in the post.
PPP’s Kim Moon-soo rolled out a similar pledge.
He said spot ETF legalization will be part of a key initiative to bolster middle-class wealth growth.
Kim said he planned to allow government entities to invest in cryptocurrencies and identify spot ETFs as an asset for portfolio diversification.
The main opposition launched a digital asset committee under the election task force during its policy meeting on Tuesday.
The committee aims to draft a bill concerning stablecoins, non-fungible tokens (NFTs) and security token offerings (STOs).
Similarly, the PPP outlined seven crypto-related policies last month.
Included are legalizing spot ETFs and crypto trading for institutional entities and financial institutions.
Also on the list are legislation for STOs, a policy framework for stablecoins and a tax system for digital assets.
Meanwhile, Lee of the Reform Party said he would recognize bitcoin as a strategic national asset.
Still, he said the proportion of bitcoin as the national asset should be limited.
“The virtual assets should not account for too large a portion of the overall asset portfolio and should be held in forms such as ETFs,” he said during an interview on a YouTube program last month.
Clearer regulations and definition of crypto needed
Most pressing, according to Shin Yong-woo, an attorney at law firm Jipyong, is for the financial authorities to recognize bitcoin as a legitimate financial investment vehicle or a commonly traded commodity under the law governing capital markets.
“The revision of the Capital Market Act will lay the groundwork for the recognition," he said.
"Also needed are crypto exchanges to meet the current regulations on the price or indices for the digital coins as an underlying asset. The role of the exchanges will include listing and delisting, market monitoring, investor protection and overall oversight of fair trading practices,” he added.
A clearer definition of cryptocurrencies and regulatory guidelines are critical for effective market functioning, in his view.
“Whether the financial regulators will conclude bitcoin qualifies as an underlying asset will determine the level of legal uncertainty.”
Also needed are bitcoin custody and management service providers, he added.
“The service providers will have to be able to incorporate technical and standards aspects of bitcoins into the context of regulatory framework."
The much-anticipated spot crypto ETF legalization will encounter major roadblocks without preparatory steps, he added.
The ETFs can be introduced through discretionary legal interpretation by financial authorities, in his view.
However, clearer regulations are pivotal to reduce uncertainty, underpinned by a regulatory environment that fosters investor protection and market growth.
“The success of spot bitcoin ETFs in the United States was promoted by institutional support, greater customer accessibility and strong market demand. Korea needs a similar overarching regulatory framework for brokerage, trading and custody services," he said.