By
Steve Muchoki
June 14th, 2024
Xangle, a Seoul-based crypto data provider, argues that the Korean regulations stop efforts to restore the Korean stock market and address the “Korea Discount”, in which Korean stocks trade at lower valuations than their global peers.
South Korea’s financial regulators are under pressure following the US Securities and Exchange Commission’s (SEC) approval of exchange-traded funds (ETFs) for Ethereum, the world’s second-largest cryptocurrency. The SEC’s decision of Ethereum ETFs approval, made on May 23rd, 2024, comes after the SEC’s earlier approval of similar ETFs for Bitcoin.
The SEC’s action marks a significant change in the US, reducing barriers between traditional finance and the digital asset industry. ETFs combine different securities into a single tradable unit, offering investors a familiar and potentially less volatile way to invest in cryptocurrencies.
In contrast, South Korea’s financial regulators, the Financial Services Commission (FSC) and the Financial Supervisory Service (FSS), are hesitant to allow crypto assets on the traditional stock market. They point to the Capital Markets Act, which limits underlying assets in ETFs to established financial instruments like international currencies and commodities.
This cautious approach has been criticized as outdated. Experts, including Xangle, a Seoul-based crypto data provider, argue that the ban hinders efforts to restore the Korean stock market and address the “Korea Discount” – where Korean stocks trade at lower valuations compared to global peers.
Regulatory Inaction Threatens Korean Crypto Market
The rigid regulatory environment is seen as a key contributor to the discount. Jung Eui-jung, the head of the Korean Stockholders’ Alliance, warns that without progress on crypto ETFs for Bitcoin and Ethereum, the investors will leave the Korean market and seek opportunities elsewhere, particularly in the US.
“Who would want to invest their money in a market that lags behind the fast-changing regulatory landscape?” Jung said. He fears capital will flow to the US if Korea fails to adapt because the US is paving the way for further crypto integration.
While the current government remains cautious, there are signs of a potential shift. The main opposition Democratic Party of Korea (DPK), which secured a majority in the April general elections, is expected to address the need for easing restrictions on digital assets when the new National Assembly convenes.
Furthermore, FSS Governor Lee Bok-hyun hinted at the possibility of a public discussion on allowing cryptocurrencies in traditional finance sometime in the latter half of 2024. This could be a crucial step toward a more progressive regulatory framework.
The Race for Crypto Supremacy
The global landscape of crypto regulation is rapidly evolving. The US is moving boldly towards mainstream adoption, while Korea is at a critical point. Accepting crypto ETFs could bring in investments, strengthen the domestic stock market, and make Korea a leader in the growing crypto industry.
However, sticking to old regulations could stifle innovation and push investors away. The next few months will be crucial as Korea decides its stance in the race for crypto supremacy.