Crypto ETFs still off-imits in S. Korea as legal framework lags

Despite booming trade volume, Seoul lacks basic law to regulate virtual assets

South Korea’s cryptocurrency market has surged past its traditional stock exchange in trading volume, but outdated laws and regulatory uncertainty continue to block key developments such as spot crypto ETFs and taxation. /Graphic by Lee Chul-won

Last year, a South Korean financial platform attempted to launch a spot exchange-traded fund (ETF) tied to virtual assets. The idea was to create an index based on the prices of cryptocurrencies like Bitcoin and Ethereum, enabling everyday investors to trade the product on the stock market. However, the plan was halted before it could even begin.

That’s because S. Korea’s Capital Markets Act does not recognize virtual assets as eligible underlying assets for financial products such as ETFs—a fundamental legal barrier.

“There’s still no institutional consensus in Korea on how to classify virtual assets,” a fintech industry official said, pointing to a broader regulatory uncertainty.

Despite this ambiguity, the scale of the market has grown significantly. As of the end of last year, cryptocurrency trading volume reached 1,345 trillion won—or about $984 million—surpassing the $888 million recorded on the country’s main stock exchange, the KOSPI. The number of users also climbed to 9.7 million.

This explosive growth has brought virtual assets into the political spotlight. Candidates from both ruling and opposition parties pledged during the last presidential election to introduce spot crypto ETFs. Yet in reality, the absence of a basic legal framework has made it difficult to ensure user protection, foster related industries, or implement proper taxation.

Cryptocurrency exchanges first emerged in S. Korea in 2013. However more than a decade later, the country still lacks a comprehensive law that defines virtual assets as a legitimate industry.

Such a foundational law would not only bring the market under the government’s regulatory umbrella, but also create a stable structure in which the industry could grow. However, S. Korea remains in the early stages of this process.

At present, oversight of digital asset service providers is based on the Act on Reporting and Using Specified Financial Transaction Information, a law originally enacted in 2001 to combat money laundering.

In July 2023, the government implemented the Act on the Protection of Virtual Asset Users, but the law is limited in scope. It focuses primarily on individual investor protections, such as reserve requirements and anti-money laundering measures like the travel rule.

“The lack of a basic law means even the government’s administrative guidance lacks a clear legal foundation,” said an official from a domestic cryptocurrency exchange. “As a result, there’s constant confusion over what constitutes a violation, who can be penalized, and how the rules should be interpreted.”

Experts warn that without a proper legal framework, S. Korea will struggle to keep up with global standards.

One of the most visible examples is the issue of spot crypto ETFs. In January 2024, the U.S. Securities and Exchange Commission approved the issuance of a Bitcoin ETF, and the European Union had already allowed trading in derivatives linked to virtual assets.

Japan has also moved to bring virtual assets under regulatory control. While it has yet to establish a basic law, Tokyo revised its Financial Instruments and Exchange Act in 2019 to include virtual asset derivatives. Last year, it began working on legislative changes to pave the way for crypto ETFs starting next year.

By contrast, S. Korea’s Capital Markets Act continues to exclude virtual assets from the list of approved underlying assets, and financial regulators have used this as the primary reason to reject spot ETF proposals.

Kang Hyung-gu, a professor at Hanyang University and former president of the Korean Financial Management Association, believes this delay is a missed opportunity.

“As the approval of spot crypto ETFs continues to stall, S. Korea is losing a key chance to activate the virtual asset market,” Kang said. “Financial regulators are blocking institutional investment in crypto, but without a basic law, such restrictions amount to shadow regulation—imposing limitations without solid legal grounds.”

Taxation poses yet another challenge to the development of South Korea’s crypto industry.

Although the principle of taxing income is widely accepted, the government has repeatedly delayed crypto tax enforcement due to unresolved questions about how such taxes should be structured and collected.

Originally set to begin in 2022, crypto taxation has now been postponed three times, with the latest implementation date pushed to January 2027.

Even so, the underlying tax system remains poorly prepared.

Key issues—such as how to calculate income from transactions made on overseas exchanges, how users should report their trades, and what criteria should be used to determine acquisition costs—have yet to be properly addressed or agreed upon.