Blueprint for Crypto Spot ETFs Revealed: Eliminating 'Kimchi Premium' and Introducing Futures Market

Key prerequisites for introducing domestic virtual asset spot exchange-traded funds (ETFs) have been identified, including the recognition of underlying assets, the elimination of the so-called "Kimchi Premium," and the establishment of a futures market.

These findings were included in a report titled "Research on Introducing Virtual Asset Exchange-Traded Products," which was submitted to the Korea Exchange (KRX) by Representative Ahn Do-geol of the Democratic Party of Korea today.

The exchange commissioned the research to the Korea Capital Market Institute in September last year. The institute analyzed cases from six countries—the United States, the United Kingdom, Germany, Canada, Australia, and Hong Kong—and submitted the report in April of this year.

The report first proposed a legislative task to include virtual assets within the scope of underlying assets as defined by the Financial Investment Services and Capital Markets Act (hereinafter referred to as the Capital Markets Act).

The current Capital Markets Act limits the underlying assets of ETFs to financial investment products, currencies, and general commodities.

Virtual assets must be added to this list to enable the launch of virtual asset ETFs.

The Financial Services Commission, which is promoting the introduction of ETFs, also mentioned in the "2026 Economic Growth Strategy" announced jointly with related ministries yesterday that it would support the amendment of the Capital Markets Act.

Resolving the "Kimchi Premium" was also presented as a prerequisite.

The Kimchi Premium refers to the phenomenon where the price of a specific virtual asset is higher on domestic exchanges than on overseas exchanges.

According to the Capital Markets Act, the price of an underlying asset must be calculated in a reasonable and appropriate manner.

If the domestic and international prices of the same asset differ, it may be difficult to satisfy this requirement.

As a solution, the report suggested allowing ETF managers to procure (deposit) spot assets from overseas platforms.

The logic is that if an arbitrage structure is opened where Authorized Participants (APs) can purchase virtual assets at relatively lower prices overseas and bring them into the country, the Kimchi Premium could be mitigated to some extent.

The report also noted the necessity of a futures market for risk hedging.

It stated that a futures market is needed to hedge against the risk of rapid price fluctuations that APs may be exposed to when buying and selling large quantities of virtual assets while creating or redeeming spot ETFs.

It also suggested that a phased approach would be desirable, starting by allowing Bitcoin ETFs to monitor operational issues before additionally permitting altcoin (virtual assets other than Bitcoin) ETFs.

Furthermore, the report proposed the creation of a new trust license specialized in the custody and management of virtual assets.

This is because banks, which typically handle ETF trusts, lack the infrastructure for virtual asset custody and management, while Virtual Asset Service Providers (VASPs) find it difficult to meet the requirements for ETF trust licensing.

Therefore, the report suggests that a realistic alternative would be for banks to hold the legal ownership of virtual assets as the primary trustee of the ETF, while re-entrusting the actual custody and management to a VASP that has acquired the newly created license.

Additionally, the report mentioned a plan to grant VASP qualifications to securities firms so they can act as prime brokers (PBs).

PBs connect managers and the market by buying and selling assets when creating or redeeming ETFs, and the intent is to improve the system so that securities firms can trade virtual asset spot and futures products.

Regarding this, a Korea Exchange official explained, "This was an external research project conducted at the research level, and whether to introduce it is a matter that requires review through consultations with the government."
※ Please note: This article was translated by AI and may contain errors.