South Korea Permits Corporate Crypto Investments, Lifts Nine-Year Ban

South Korea’s Financial Services Commission (FSC) has reportedly established new guidelines allowing publicly listed companies and professional investors to trade in cryptocurrencies. This development ends a nine-year ban on corporate cryptocurrency investments and aligns with the country’s “2026 Economic Growth Strategy,” which also encompasses stablecoin regulation and the approval of spot crypto exchange-traded funds (ETFs) announced recently.

Under the new guidelines, eligible corporations can invest up to 5% of their equity capital in cryptocurrencies each year. Investments are restricted to the top 20 digital currencies by market capitalization, traded on Korea’s five leading exchanges. An estimated 3,500 entities, including publicly listed firms and registered professional investment companies, will be able to participate under these rules. Discussions are ongoing about whether stablecoins like Tether’s USDT will qualify for investment. The guidelines also require exchanges to implement staggered execution and order size limits to manage market impacts.

This marks the first regulatory approval for corporate cryptocurrency investment in South Korea since a ban was enacted in 2017 due to money laundering concerns. During the ban, nearly all trading activity was dominated by retail investors, leading to capital flight amounting to 76 trillion won (approximately $52 billion) as traders sought opportunities abroad. By contrast, in mature markets like the U.S., institutional trading represented over 80% of the volume at platforms like Coinbase in the first half of 2024. Industry experts anticipate that this opening will boost the momentum for a won-backed stablecoin and the establishment of domestic spot Bitcoin ETFs.

Despite welcoming the regulatory shift, some industry players argue that the 5% investment cap is overly cautious. They point out that other markets, such as the U.S., Japan, Hong Kong, and the European Union, do not impose similar limits on corporate cryptocurrency holdings. Critics suggest that these restrictions could hinder the development of Digital Asset Treasury companies in South Korea, akin to Japan’s Metaplanet, which enhances corporate value through strategic Bitcoin accumulation. An industry official commented that “excessive regulations on crypto could cause Korea to lag behind as global markets evolve.”

The FSC intends to finalize and release these guidelines by January or February. The rollout of the new rules will be coordinated with the Digital Asset Basic Act, expected to be introduced in the first quarter of 2025. Corporate trading under these guidelines is anticipated to begin by the end of the year.

Exchange-traded funds (ETFs) are financial instruments that allow investors to trade a basket of assets, similar to stocks, on exchanges. A “spot” ETF involves direct ownership of the underlying assets, unlike futures-based ETFs. Issuers file for approval of such financial products to provide investors with diversified, liquid, and cost-effective access to markets. Regulatory approval processes typically involve scrutiny over factors such as custody, market integrity, and investor protections.

Regulators globally focus on various aspects when overseeing cryptocurrency investments, emphasizing the importance of market integrity, adequate surveillance-sharing agreements, and comprehensive disclosures. They aim to ensure investor protection, which includes safeguarding against fraud and ensuring transparent operations.

Large banks and asset managers are exploring crypto products to meet growing client demand and generate fee-based income. These institutions view crypto assets as a potential gateway for offering innovative financial products and gaining competitive advantages in the evolving digital market landscape.

Bitcoin, as the largest cryptocurrency by market value, and Solana, known for its smart-contract capabilities, are examples of digital assets attracting significant institutional interest. However, crypto investments carry inherent risks, including high volatility, liquidity challenges, operational uncertainties, regulatory ambiguity, and possible tracking errors. Fees associated with crypto products are another consideration for investors.

The competitive landscape for crypto investment products is dynamic, with multiple issuers often submitting applications for similar offerings. Timelines for regulatory approvals can be unpredictable, and amendments to applications are common as issuers respond to regulatory feedback.

Looking ahead, stakeholders are keenly observing the unfolding regulatory framework and its implications for institutional engagement in the cryptocurrency market. The timeline for final implementation, potential amendments, and the overall impact on South Korea’s financial ecosystem remain key points of interest.