Rising ‘Coin Theme’ Stock Inclusions Spur Caution

South Korea’s Financial Supervisory Service (FSS) has reportedly issued verbal guidance to domestic asset management companies, urging them to limit the proportion of crypto asset-related stocks in their listed exchange traded funds (ETFs). The move serves as a reminder that the “emergency measures related to virtual currencies” announced by financial authorities in 2017 remain in effect.

According to a local report, the FSS advised asset managers to cut back on stocks of companies such as Coinbase and Strategy in their ETF portfolios. The regulator emphasized the need to comply with the 2017 administrative guidance, which prohibits institutional financial companies from holding, purchasing, accepting as collateral, or investing in virtual assets.

An unnamed FSS official clarified the position, stating: “Recently, there has been a trend of deregulation related to virtual assets in the U.S. and Korea, but there have been no specific laws or guidelines established yet. This means that existing guidelines should be followed until the new system is complete.”

The verbal guidance is seen as a response to the recent surge in the inclusion of so-called “coin theme” stocks—cryptocurrency exchanges, mining companies, and blockchain technology firms—in the local ETF market.

As noted in the report, many domestically listed ETFs currently hold significant proportions of crypto asset-related stocks, often exceeding 10%. For example, Korea Investment Trust Management’s ACE U.S. Stock Bestseller ETF, which tracks F&Guide’s best-selling U.S. stock index, allocates 14.59% to Coinbase.

Likewise, the KoACT U.S. Nasdaq Growth Company Active ETF includes 7.44% Coinbase and 6.04% Strategy, totaling 13.48% in related stocks. The KoACT Global AI & Robot Active ETF holds 10.34% Coinbase, and Timefolio Asset Management’s TIMFOLIO U.S. Nasdaq 100 Active ETF reportedly invests about 8% in coin-related stocks.

Industry Faces Compliance Dilemma

Asset managers argue that excluding these stocks immediately poses challenges. While active ETFs can adjust holdings at the manager’s discretion, passive ETFs are bound to their underlying indices.

“Because the structure directly follows the index, if stocks are arbitrarily excluded without changing the index, the tracking error could rise sharply,” an industry insider explained. “I understand the regulatory tone, but it’s not easy to respond immediately.”

An FSS official acknowledged this concern: “We are fully aware that passive ETFs cannot be excluded at the discretion of the asset management company because their structure directly follows the underlying index. This statement is intended to encourage caution in the overall design of ETF products until the system is reorganized.”

Industry critics also question the fairness of applying regulatory standards solely to domestic ETFs, noting that South Korean investors are already indirectly investing in virtual asset companies via U.S.-listed funds.