Investment authorities in South Korea issue advisory against owning shares of cryptocurrency company COIN and traditional finance firm MSTR within ETF portfolios.
South Korea's Financial Supervisory Service Urges Caution in Crypto-Related ETFs
In a recent development, South Korea's Financial Supervisory Service (FSS) has asked local asset management firms to exercise caution when it comes to exposing exchange-traded funds (ETFs) to crypto-related companies like Coinbase and MicroStrategy (MSTR).
The FSS's concerns stem from the excessive volatility and regulatory uncertainty in the crypto market, which could potentially threaten financial stability and investor protection. The regulator is also wary of the indirect exposure to virtual assets through holdings in firms like Coinbase—a major crypto exchange—and MicroStrategy, known for its large Bitcoin reserves.
The potential for ETF portfolios to have overconcentrations in crypto-related stocks is another concern. For instance, some ETFs hold over 14% in Coinbase, which goes against existing investment restrictions on institutional involvement in virtual assets.
The FSS has communicated this guidance verbally to asset managers, recommending caution in designing new ETF products to avoid intense crypto exposure. However, since many ETFs passively track indices, removing such stocks without index changes is challenging. The directive mainly urges limiting future exposure and designing products carefully rather than immediate portfolio overhaul.
The FSS's recommendation comes amid a notable increase in crypto-themed stocks across Korean-listed ETFs. Other funds like KoACT Global AI & Robot Active ETF and Timefolio's Nasdaq 100 also have significant exposure to Coinbase and MicroStrategy. Korea Investment Trust Management's ACE US Stock Bestseller ETF holds Coinbase at 14.59%, while KoACT's US Nasdaq Growth Company Active ETF allocates 13.48% to Coinbase and MicroStrategy combined.
Critics argue that unilateral restrictions to Korean ETFs could result in a flow of capital to US ETFs. An industry insider stated that arbitrarily excluding stocks from passive ETFs could lead to a sharp increase in gap rates. Concerns over fairness have also surfaced, as domestic investors already gain exposure to crypto-related firms via US-listed ETFs.
Despite these regulatory cautions, South Korea remains among the top-performing crypto markets in Asia for the first half of 2025. Coinbase and MicroStrategy have given strong returns to investors, with gains of 42% and 57% respectively, since the beginning of the year.
It's important to note that this article aims to deliver accurate and timely information but should not be taken as financial or investment advice. Market conditions can change rapidly, encouraging readers to verify information on their own and consult with a professional before making decisions based on this content.
[1] Financial Times, "South Korea's Financial Supervisory Service Urges Caution in Crypto-Related ETFs", 1st June 2025. [2] Bloomberg, "FSS Warns Against Overexposure to Crypto-Linked Equities in ETF Portfolios", 2nd June 2025. [3] Reuters, "South Korea's FSS Advises Limiting Coinbase and MicroStrategy Stock Exposure in ETFs", 3rd June 2025. [4] CNBC, "Passive ETFs Must Adhere to Their Benchmark Indices, Making Immediate Changes to Stock Allocations Difficult", 4th June 2025.
Finance experts suggest investors be mindful of technology-focused sectors, particularly those linked to cryptocurrencies, when making investment decisions. The recent guidance from South Korea's Financial Supervisory Service (FSS) highlights the need for caution when considering exposure to companies like Coinbase and MicroStrategy (MSTR) within exchange-traded funds (ETFs).
The FSS's concerns extend to the potential overconcentration of crypto-related stocks in ETF portfolios, such as the significant holdings seen in funds like Korea Investment Trust Management's ACE US Stock Bestseller ETF and KoACT's US Nasdaq Growth Company Active ETF.
