The FSS urged asset managers to limit exposure to crypto-related equities like Coinbase and Strategy in ETF portfolios.
By Bhushan Akolkar
Editor Julia Sakovich
Updated
3 mins read
The Financial Supervisory Service (FSS), South Korea’s top financial regulator, has asked local asset management firms to put a strict cap on exposure to crypto-related companies like Coinbase and Strategy (formerly known as MicroStrategy), and refrain from increasing the portion of these stocks from exchange-traded funds (ETFs). This recent guidance aligns with “emergency measures related to virtual currencies” announced by the FSS in 2017.
The FSS’s recommendation is based on concerns about overexposure to crypto-linked equities in ETF portfolios. Crypto firms like Strategy (MSTR) and Coinbase (COIN) have given strong returns to investors, with gains of 42% and 57% respectively, since the beginning of 2025. Trading volumes for these stocks have spiked amid retail and institutional interest.
One of the FSS spokesperson said:
“Recently, there has been a trend of deregulation related to virtual assets in the U.S. and Korea, but there have been no specific laws or guidelines established yet. This means that existing guidelines should be followed until the new system is complete.”
The remarks come amid a notable increase in crypto-themed stocks across Korean-listed ETFs. Korea Investment Trust Management’s ACE US Stock Bestseller ETF holds Coinbase at 14.59%, while KoACT’s US Nasdaq Growth Company Active ETF allocates 13.48% to Coinbase and Strategy combined. Other funds, like KoACT Global AI & Robot Active ETF and Timefolio’s Nasdaq 100.
South Korea remains among the top-performing crypto markets in Asia for the first half of 2025. Driven by President Lee Jae-myung’s pro-crypto agenda, South Korea’s KOSPI index rallied nearly 30% in the first half of 2025.
Asset managers argue that while active ETFs allow flexibility in asset selection, passive ETFs must adhere to their benchmark indices. This is because passive ETFs make immediate changes to stock allocations difficult without reconfiguring the underlying index itself. An industry insider said:
“Because the structure is to directly follow the index, if stocks are arbitrarily excluded without changing the index, the gap rate could rise sharply. I understand the regulatory tone, but it is not easy to respond immediately.”
Concerns over fairness have also surfaced. Critics point out that domestic investors already gain exposure to crypto-related firms via US-listed ETFs. They added that there’s no point in introducing unilateral restrictions to Korean ETFs, which could result in a flow of capital to US ETFs.
Rising demand for crypto exposure, fueled by a more accommodative US regulatory climate under President Donald Trump, has led to higher allocations.
“Restricting only domestic ETFs will not stop the flow of funds, and in reality, many investors are already bypassing the market with U.S. ETFs,” another industry insider explained.
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Bhushan is a FinTech enthusiast and holds a good flair in understanding financial markets. His interest in economics and finance draw his attention towards the new emerging Blockchain Technology and Cryptocurrency markets. He is continuously in a learning process and keeps himself motivated by sharing his acquired knowledge. In free time he reads thriller fictions novels and sometimes explore his culinary skills.
