Although the political realm has begun legislative work for the issuance of cryptocurrency exchange-traded funds (ETFs), the industry response indicates that the launch of related products is still a distant prospect. Some asset managers are forming relevant organizations and conducting studies in preparation for the opening of the cryptocurrency ETF market, but there is virtually no existing system required for the ETF to be launched.
The industry explains that the financial authorities must take a leading role in organizing related systems and creating guidelines to seriously begin product development.
The political realm is preparing legislation that could allow for the introduction of cryptocurrency spot ETFs. Last month, Min Byeong-deok, a member of the National Policy Committee from the Democratic Party of Korea, proposed a bill that includes provisions to institutionalize ETFs based on digital assets such as Bitcoin.
This bill aims to include digital assets within the scope of underlying assets for financial investment products and trust properties. It also provides a legal basis for trustees to hold and manage digital assets.
On the 30th of last month, it was reported that Professor Kang Hyung-koo, an expert in virtual assets from Hanyang University’s Business School, joined the Presidential Committee on Policy Planning as an advisor. Professor Kang, who has been nurturing blockchain talent, previously participated in the establishment of the Digital Asset Basic Act. As President Lee Jae-myung has made the introduction of cryptocurrency spot ETFs a promise in his presidential campaign, there seems to be increasing momentum in the political realm for the establishment of related laws.
As the legislative process for related laws intensifies, asset management companies are also beginning to prepare. Large asset management firms are conducting internal studies in anticipation of the launch of cryptocurrency spot ETFs. Korea Investment Trust Management, for example, established a digital strategy division for the proactive launch of a cryptocurrency spot ETF last month.
However, the asset management industry notes that even if a legal basis is quickly established, there are many considerations to take into account before actually launching a cryptocurrency spot ETF. When creating an ETF, it is necessary to determine which underlying index to track, and for virtual assets, the immediate question is which index to follow, as there is currently no underlying index for virtual assets in Korea.
Generally, the underlying index that ETFs track is often created by the Korea Exchange. For instance, in the case of the gold spot ETF, which is a type of spot ETF, the initial product was developed collaboratively between the exchange and the asset management firm at the time of its launch. If a cryptocurrency spot ETF were to become a reality, it could lead to the development of an underlying index for virtual assets by the exchange, but as of now, there have been no significant discussions on this matter.
A representative from a large asset management firm said, “Even though it’s the same Bitcoin, the price differs from one cryptocurrency exchange to another, so it is a subject of consideration whether the price benchmark for the cryptocurrency that will be the ETF's underlying index should be based on domestic or overseas exchange prices, adding, “Furthermore, given that virtual assets are traded 24/7, discussions are necessary regarding how to determine the benchmark price.”
Another industry representative noted, “Since there are currently no regulations or systems related to virtual assets, there is realistically nothing we can prepare for,” adding, “Even if we purchase virtual assets for spot ETF management, there are many detailed aspects to consider, such as what infrastructure is available for the custody of physical virtual assets and how orders will be placed and executed.”
Within the industry, there are growing discussions about the importance of the National Assembly's legislative action alongside proactive roles from financial authorities, as there are many aspects that require establishing standards, such as the underlying index and criteria qualifications.
However, the Financial Services Commission is exhibiting a cautious atmosphere. A representative from the Financial Services Commission stated, “Regarding the cryptocurrency spot ETF, it is part of the president's pledges,” and noted, “At present, we are conducting a comprehensive review, and if it is included in the agenda by the Presidential Committee on Policy Planning, we might see a faster pace in its realization.”
Given these circumstances, the asset management industry has no choice but to remain attentive to developments. A representative from a large asset management firm said, “There are many systems that need to be organized, and it is not a situation where the asset management industry can take the lead in establishing them,” adding, “I believe the Financial Services Commission needs to set standards for the underlying index and benchmark prices. For now, we are in a state of mental preparation and waiting.”
Meanwhile, the Financial Services Commission announced that it plans to prepare measures for the introduction of cryptocurrency spot ETFs in the second half of this year through a recent report to the Presidential Committee on Policy Planning. Specifically, it plans to establish related infrastructure such as setup, custody, management, and evaluation, as well as investor protection measures.