As Domestic Investment Stalls... Korean Investors Flock to U.S. Bitcoin Themed Stocks and Derivatives

20% of Futures ETFs Held by Koreans

Large Sums in 'Ethereum Leverage' as Well

While investment in Bitcoin spot ETFs is blocked domestically, Korean investors have turned to U.S. Bitcoin themed stocks that they can trade. Large sums of domestic investors' money have flowed into Bitcoin futures ETFs and leverage products that are available for investment.

As domestic investment stalls... Korean investors flock to U.S. Bitcoin themed stocks and derivatives. According to the Korea Securities Depository on the 9th, domestic investors have net purchased $177.82 million (about 260 billion KRW) worth of MicroStrategy, a U.S. Bitcoin themed stock, over the past six months. This company started purchasing Bitcoin in 2020 and currently holds about 450,000 units. After the U.S. presidential election, as Bitcoin prices rose, MicroStrategy's stock price also surged from $222.99 to as high as $473.83. It is currently trading at $331.70.

Domestic investors also net purchased $140.42 million (about 205 billion KRW) worth of the '2X Bitcoin Strategy ETF' (ticker BITX), which tracks twice the daily fluctuation of Bitcoin futures prices, during the same period. The size of BITX holdings by domestic investors amounts to $649.40 million. Considering BITX's market capitalization of $3.11 billion, 20.9% is invested by Koreans.

The 'ProShares Ultra Bitcoin ETF' (BITU), which follows twice the price of Bitcoin spot, was net purchased for $119 million, and the Bitcoin futures ETF 'ProShares Bitcoin ETF' (BITO) was net purchased for $84.78 million during this period. Recently, interest in Ethereum investment products among Korean investors has also been growing. The '2X Ethereum ETF' (ETHU) was net purchased for $306.67 million (about 450 billion KRW) over the past six months.

The reason Bitcoin spot ETF investment is not possible domestically is that financial authorities interpret that cryptocurrencies like Bitcoin are not included in the definition of 'underlying assets' under the Capital Markets Act. Bitcoin futures ETFs and leverage ETFs are allowed for investment because they are derivatives that do not directly hold Bitcoin. However, there are criticisms that domestic investors are losing out because spot ETFs have outperformed futures ETFs in terms of returns and have lower fees. The one-year return of the spot ETF 'Grayscale Bitcoin ETF' (GBTC) is 91%, but the return of the futures ETF BITO is 64%.

Reporter Jo Mi-hyeon mwise@hankyung.com