Coinbase, Strategy Under The Microscope In South Korea's ETF Market—Should You Be Concerned?

South Korea's financial regulator has reiterated its stance against institutional investment in crypto-related firms, advising domestic asset managers to limit their exposure to companies such as Coinbase COIN and Strategy MSTR in ETF portfolios.

What Happened: According to a local news report, the Financial Supervisory Service (FSS) recently issued verbal guidance to several asset management firms.

The notice discouraged expanding holdings in businesses linked to virtual assets, referencing the 2017 administrative order that bars financial institutions from purchasing, holding, or investing in crypto assets or related equities.

While the latest directive does not carry the weight of a formal regulation, it reflects continued caution from regulators as local ETFs increasingly allocate capital to crypto-affiliated companies.

Officials emphasized that existing restrictions remain valid until new legal frameworks are put in place.

An FSS representative confirmed the advisory, explaining, "Although deregulation efforts are underway in both the U.S. and South Korea, no formal legal structure has yet been implemented. Until that happens, current guidelines should be followed."

Why It Matters: The move comes amid a rise in domestic ETFs gaining significant exposure to crypto-related stocks. Several listed products now exceed a 10% allocation in such equities.

Korea Investment Trust Management's ACE US Stock Bestseller ETF, for example, holds Coinbase at a weight of 14.59%.

KoACT's active Nasdaq Growth Company ETF has 13.48% exposure split between Coinbase and Strategy, while other ETFs hold similar proportions in blockchain or exchange-linked firms.

Also Read: Justice Department Drops Case Against Kraken Founder Jesse Powell

These allocations have raised regulatory flags, particularly as global investor sentiment tilts toward crypto-friendly assets.

However, ETF managers note the difficulty in complying immediately, especially for passive ETFs that are bound by external index providers. Changing these allocations would require revising the index methodology itself.

"We understand the caution from regulators, but passive ETFs cannot arbitrarily adjust their holdings without deviating from their tracking index," one asset management professional said.

FSS officials acknowledged this limitation, clarifying that the guidance was not a call for immediate divestment, but rather a signal to approach the design of future ETFs with greater restraint until the regulatory landscape evolves.

Industry voices have also raised concerns over fairness, pointing out that Korean investors can still gain exposure to the same crypto-linked companies via overseas ETFs. "Restricting domestic ETFs alone won't stem capital flows. Investors are already accessing these assets through U.S.-listed products," one executive commented.

The discussion also reflects broader market dynamics, as U.S. policy under the Trump administration's second term has reportedly supported crypto adoption.

Coupled with domestic political promises such as Democratic Party leader Lee Jae-myung's proposal to allow a Bitcoin BTC/USD spot ETF expectations for relaxed crypto regulations in Korea have increased.

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