The Democratic Party in South Korea has announced plans to request the Financial Services Commission (FSC) to reconsider its stance on spot Bitcoin (BTC) exchange-traded funds (ETFs). This move comes as 10% of South Korea's population, or 6 million people, have invested in cryptocurrencies.

The Democratic Party, which holds a majority in the National Assembly following its victory in the April elections, had previously included the allowance of spot ETFs with underlying virtual assets as part of its campaign promises. An official from the party's policy committee stated that they would make the request to the FSC after the opening of the National Assembly in June.

FSC's Current Stance on Spot Bitcoin ETFs

In January, the FSC issued a statement asserting that domestic securities firms could be in violation of the Capital Markets Act by listing foreign spot BTC ETFs. This decision came despite the United States Securities and Exchange Commission's approval of spot BTC ETF trading on January 10th.

The FSC's position was met with criticism, and even the previous presidential administration urged the regulator to reconsider its decision. The prevailing interpretation of the Capital Markets Act does not include virtual assets in the definition of an underlying asset, according to the FSC.

Potential Revision of the Capital Markets Act

If the FSC's response to the Democratic Party's request is deemed insufficient, the party is considering revising the Capital Markets Act to accommodate spot Bitcoin ETFs. However, amending the act would require a lengthy process spanning several months.

The Democratic Party official also mentioned that discussions on the second stage of the 2020 Virtual Asset Business Rights Act would commence in the second half of the year. This indicates a broader push towards establishing a comprehensive regulatory framework for virtual assets in South Korea.

Growing Crypto Adoption in South Korea

The move towards allowing spot Bitcoin ETFs in South Korea is driven by the country's rapidly growing crypto adoption. A survey conducted by the Korea Financial Intelligence Unit (KoFIU) projects that the number of crypto investors in the country will reach 6 million in the first half of 2024, representing over 10% of the total population.

South Korean investors have shown a strong preference for altcoins and locally developed tokens, with cryptocurrencies like Loom Network (LOOM), eCash (XEC), and Flow (FLOW) enjoying high trading volumes on domestic exchanges. This trend reflects the unique characteristics of the Korean crypto market compared to global preferences.

Impact of Hong Kong's Spot Bitcoin and Ether ETFs

The launch of spot Bitcoin and Ether (ETH) exchange-traded funds in Hong Kong on April 30th has raised hopes for the creation of a similar market in South Korea. Despite the modest performance of the Hong Kong ETFs, their introduction has set a precedent for the region and could catalyze further developments in the Korean crypto space.

Regulatory Landscape and Future Developments

Since the passage of the 2020 Virtual Asset Business Rights Act, South Korean regulators have been tightening their oversight of the crypto industry. The FSC's reluctance to allow spot Bitcoin ETFs reflects the cautious approach taken by authorities in navigating the rapidly evolving virtual asset landscape.

As discussions on the second stage of the act unfold, it is expected that South Korea will continue to refine its regulatory framework to strike a balance between fostering innovation and protecting investors. The Democratic Party's push for spot Bitcoin ETFs is a significant step towards mainstream adoption of cryptocurrencies in the country.

Looking ahead, the crypto community in South Korea and beyond will be closely monitoring the developments surrounding spot Bitcoin ETFs and the broader regulatory environment. The success of such products could pave the way for increased institutional participation and further legitimize cryptocurrencies as an asset class.

South Korea's move towards allowing spot Bitcoin ETFs, coupled with the growing crypto adoption among its population, positions the country as a key player in the global cryptocurrency market. As regulators and lawmakers navigate the complexities of virtual assets, the decisions made in South Korea could have far-reaching implications for the future of cryptocurrencies in the region and beyond.