Adding Digital-Asset ETF To The Domestic Legal Framework

In a significant step for the nation’s financial innovation, South Korean lawmaker Min Byung-deok of the Democratic Party introduced a bill on June 27 to amend the Capital Markets Act, as reported by News1.

His new proposal seeks to expand the scope of underlying assets for exchange-traded funds (ETFs) to include digital assets such as Bitcoin—a move that could transform South Korea’s investment landscape and bring digital assets further into the mainstream.

The proposed amendment would create a comprehensive legal framework, enabling trust companies to hold and manage digital assets as trust property.

It also defines clear conditions for delegating the custody of virtual assets to registered service providers, aiming to ensure greater security and transparency in the management of digital assets.

This legislative effort aligns with President Lee Jae-myung’s broader agenda to integrate digital assets into South Korea’s financial system.

Complementing this bill, the Financial Services Commission has announced a separate roadmap that would allow institutional investors with more than KRW 10 billion in assets to begin trading virtual assets by late 2025.

Many industry experts have applauded the new proposal, highlighting the ability of the new amendment to provide a solid legal foundation for digital asset-based ETFs, enhance investor protection, and expand the derivatives market, enabling more sophisticated risk management strategies.

However, others have cautioned that offering digital asset derivatives requires robust risk controls, one of which being only allowing firms with proven capacity to provide such products.

Currently, South Korea prohibits ETFs that use digital assets as underlying assets, forcing domestic investors to seek opportunities abroad or operate in unregulated markets.

The new measure could create a regulated and transparent pathway for Korean investors to participate in this fast-growing market domestically.

South Korea Navagating Through The Global Regulatory Uncertainty

If enacted, the amendment would empower asset managers to develop a broader range of financial products tied to digital assets, increasing ETF market diversity and strengthening oversight.

Min Byung-deok emphasized that the bill is designed to spur industry growth while enhancing protections for Korean investors.

Globally, regulators continue to debate the best frameworks for digital asset ETFs, with many countries still addressing core challenges such as asset valuation, custody, and cross-border compliance.

The absence of uniform standards often leads to regulatory arbitrage and inconsistent investor protections.

Industry observers note that any changes to ETF regulations could have far-reaching effects, influencing debates on digital asset taxation, reporting standards, and the broader integration of digital finance into national economic strategies.