South Korea to Launch Digital Asset Spot ETF Amid Regulatory Progress

South Korea is set to launch its first digital asset spot exchange-traded fund (ETF) following a government directive from the Ministry of Economy and Finance. The move marks a significant step in the country's ongoing efforts to formalize a regulatory framework for cryptocurrency trading according to reports.

The government has been working with the Financial Services Commission (FSC) to finalize guidelines that will enable the creation of crypto-based ETFs. The FSC submitted a roadmap in June 2025, proposing the launch of spot crypto ETFs by late 2025, but delays have pushed the timeline into 2026.

Despite these efforts, regulatory disagreements have slowed progress. A key sticking point remains the governance of stablecoins, with the Bank of Korea insisting that only bank-led consortia should issue stablecoins, requiring at least 51% ownership by licensed banks. The FSC has resisted this, arguing it could hinder innovation.

Why Did This Happen?

The decision to launch a digital asset spot ETF comes amid growing pressure from market participants and the government to attract capital and enhance South Korea's position in global financial markets. With over 10 million South Koreans actively trading cryptocurrency, the government sees digital assets as a strategic asset class that could drive economic growth.

Regulators have also emphasized the need to close regulatory gaps that have driven many investors to offshore platforms. In 2025, South Koreans transferred over 160 trillion won ($110 billion) from domestic exchanges to foreign ones, citing a lack of complex trading products available in the local market.

What Are Analysts Watching Next?

Analysts are closely watching how the government will address the stalled Digital Asset Basic Act, which was delayed in 2026 due to continued regulatory disagreements. The act is expected to introduce strict investor protections, including full-reserve custody requirements for stablecoin issuers and compliance standards for crypto service providers.

Another key area of focus is enforcement. The Financial Intelligence Unit (FIU) has imposed significant fines on major exchanges such as Korbit, Bithumb, and Upbit for violations related to anti-money laundering (AML) and customer identification requirements. Total fines across the sector are expected to reach hundreds of billions of won, signaling a stricter regulatory approach.

Regulators are also considering expanding transaction monitoring requirements to cover all virtual asset transfers, regardless of size. This would require exchanges to collect sender and recipient information for every crypto transaction, closing a gap that has been exploited for money laundering.

What's Next for South Korea's Crypto Market?

The government has also signaled plans to open its foreign exchange (FX) market further to attract global investors. As part of a broader economic strategy, South Korea aims to improve links with overseas trading hubs and expand onshore FX trading to a 24-hour system by July 2026.

These reforms are part of a broader push to align South Korea's financial markets with international standards and pursue inclusion in global benchmarks like MSCI's developed markets index. The government also plans to establish a sovereign wealth fund with initial capital of about 20 trillion won ($13.8 billion) to support this effort.

Despite these positive signals, regulatory uncertainty remains. Some asset managers continue to face restrictions on holding crypto-related stocks in domestic ETFs, citing outdated administrative guidance from 2017. This has led to calls for more consistent rules that align with global practices.