South Korea moved closer to introducing spot cryptocurrency exchange-traded funds on July 15 as a government-commissioned study concluded that legal reforms, improved price transparency and a domestic crypto futures market are essential before the products can be launched.
The report, commissioned by the Korea Exchange and prepared by the Korea Capital Market Institute, reviewed regulatory frameworks in the United States, the U.K., Germany, Canada, Australia and Hong Kong before recommending a roadmap for South Korea’s spot crypto ETF market.
Its primary recommendation is to amend the Capital Markets Act to recognize cryptocurrencies as eligible underlying assets for exchange-traded funds. Current law limits ETF underlying assets to financial instruments, currencies and commodities, preventing fund issuers from offering spot crypto ETFs.
The Financial Services Commission, which is leading the government’s crypto ETF initiative, said this week it would support revisions to the law as part of South Korea’s 2026 economic growth strategy.
The study also identified the so-called “Kimchi Premium”—the tendency for cryptocurrencies to trade at higher prices on domestic exchanges than on overseas platforms—as a major structural obstacle.
Under existing securities regulations, ETF underlying assets must be priced using transparent and reliable valuation methods. Persistent price differences between domestic and international markets could undermine that requirement.
To narrow those price gaps, the report recommends allowing ETF managers and authorized participants to purchase cryptocurrencies through overseas trading platforms, enabling arbitrage that could improve price efficiency.
The study also calls for establishing a regulated domestic cryptocurrency futures market to help authorized participants hedge price risks when creating and redeeming ETF shares.
Rather than approving multiple digital-asset ETFs simultaneously, the report recommends a phased approach by launching spot Bitcoin ETFs first before gradually expanding to funds linked to other cryptocurrencies after operational and regulatory risks are evaluated.
The report further proposes creating a specialized digital-asset custody license. While commercial banks typically serve as ETF custodians, most lack the infrastructure needed to securely store cryptocurrencies. Virtual asset service providers, meanwhile, generally do not qualify under existing trust licensing rules.
Under the proposed framework, banks would retain legal ownership of ETF assets while delegating custody and safekeeping to licensed digital-asset custodians.
The study also recommends allowing securities firms to obtain virtual asset service provider licenses, enabling them to serve as prime brokers capable of facilitating both spot and futures cryptocurrency transactions for ETF issuers, a move aimed at improving market efficiency and liquidity.
