Though the introduction of the bitcoin spot exchange-traded funds has paved the way for more institutional investors globally to embrace the cryptocurrency into their portfolios, Korean institutions are still taking a cautious approach.

With the US Securities and Exchange Commission approving spot bitcoin ETFs earlier this year, more institutional investors overseas, from hedge funds to private equities, are growing their exposure to the coin.

According to Coinbase, a major crypto exchange in the US, institutional trading volume hit $256 billion in the first quarter of this year, dwarfing the $56 billion from retail trades.

Even public funds are pouring money into bitcoin. Traditionally, state-operated funds have focused on more conservative assets such as bonds and stocks.

Adding on to the KiwiSaver Growth Strategy fund, part of New Zealand’s national retirement savings program, allocating 5 percent of its money to bitcoin in 2021, Government Pension Investment Fund of Japan, one of the world’s largest pension funds, said it was looking for “basic information” on assets other than those in which it already invests, such as bitcoin, in March.

Some have already chipped in through bitcoin spot ETFs. According to reports filed with the US SEC, the Wisconsin Investment Board was one of the top 10 institutional investors of bitcoin spot ETFs in the first quarter.

However, crypto investment remains off-limits for institutional investors in Korea. Though the law does not specifically state institutional investors cannot trade crypto, the current system does not allow corporations to do so, because the system only allows trading by accounts linked to verified individuals. Spot bitcoin ETFs are banned here, too.

“Though institutional investors could balance out their portfolios and maximize their risk-adjusted return through cryptocurrency, corporations and foreigners cannot open real-name accounts for transactions of cryptocurrencies,” Kim Min-seung, head of the research center at Korbit, one of the five top crypto exchanges here, said.

Though Kim views big-name institutional investors could try to trade crypto through overseas subsidiaries, the Foreign Exchange Transaction Act remains a hurdle as wiring money overseas for crypto transactions could be considered illegal.

“The legality does not matter. Institutional investors in Korea are not willing to take the chances of even discussing the agenda as they do not want to cross the financial regulators here,” Kim said.

Instead, institutional investors, including state-run funds, are on a shopping spree for crypto-related shares, betting on the growth of the crypto market through indirect investments.

According to a report filed through the US SEC, the National Pension Service, Korea’s public pension fund with assets over 1,000 trillion won ($750 billion), bought MicroStrategy shares worth $34 million in the second quarter. The NPS made the investment decision itself, not through an asset manager.

Industry watchers interpreted the NPS as making an indirect investment in bitcoin as the software provider MicroStrategy, is the largest corporate holder of the token, owning about 1 percent of the volume in circulation.

It was not the first time the public pension fund sank money into a crypto-related share. In the third quarter of 2023, the NPS purchased nearly $20 million of shares in Coinbase.

The Korea Investment Corp., the country’s sovereign wealth fund, has been investing in Coinbase since the fourth quarter of 2021. With an additional purchase of around 20,000 shares in the second quarter of 2024, it holds over 50,000 shares in the company, which is worth around $10 million.

“The bitcoin spot ETFs have paved the way for more institutional investors to invest in the coin in a regulated manner. It is time to allow corporations to open accounts for crypto trading here. The market has matured enough,” Hwang Se-woon, a senior researcher at the Korea Capital Market Institute, said.

Kim from Korbit added that allowing corporations to participate in crypto trading could lessen the volatility of the local crypto market.

“Institutional investors are more level-headed than retail investors. By having players like that on the market, it can move more reasonably, benefiting individual investors as well,” Kim said.