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As South Korea pushes to open its digital asset market to corporate investors and introduce spot exchange-traded funds, the country has virtually no market makers capable of handling large institutional orders — a gap drawing the attention of overseas liquidity providers and market makers.

Foreign digital asset liquidity providers and market makers — including Flow Traders, Cumberland and Wintermute — are exploring ways to enter the Korean market, including potential partnerships with domestic virtual asset service providers, according to industry sources. Galaxy Digital and FalconX have also been reported to be eyeing the local market.

Contact between foreign firms and domestic virtual asset service providers is not a recent development. Industry sources say these firms began cultivating relationships with local exchanges and custody providers years ago, drawn by the growth potential of a market with highly active retail investors.

Galaxy Digital made a strategic equity investment in domestic custody provider Bdac in 2024. FalconX also has ties to Korean financial institutions — Mirae Asset participated in FalconX's $210 million Series C round in 2021. Flow Traders, Cumberland and Jane Street have already established Korean entities or local branches.

The growing interest from foreign liquidity providers and market makers is underpinned by expectations surrounding the enactment of a basic digital assets law, the opening of the market to corporate investors and the introduction of spot ETFs. Industry participants say that for a bitcoin spot ETF to function smoothly, market makers and prime brokers will be just as essential as asset managers and custodians.

Even if a large asset manager places an order worth tens of billions to hundreds of billions of won, having only one or two providers capable of handling it could cause sharp price swings or abnormal execution prices. A full liquidity infrastructure — covering ETF creation and redemption, underlying asset trading and hedging — needs to be in place. The scarcity of domestic firms able to supply institutional liquidity is also seen as an opportunity for foreign market makers.

"In practical terms, market makers and prime brokers need to enter the ecosystem early for a bitcoin spot ETF to operate properly," an industry official said. "Beyond asset managers and custodians, multiple market makers are needed."

However, foreign firms' interest is unlikely to translate quickly into actual market entry. South Korea currently lacks a basic digital assets law that would define the licensing framework for market participants, leaving the legal status and permitted activities of market makers undefined.

Establishing a local presence does not mean business will ramp up immediately, either. Cumberland pursued domestic operations under former chief Hong Jun-gi, but its activities are widely seen as having been limited by regulatory uncertainty.

There are also concerns that entities with foreign shareholders could face stricter scrutiny during the approval process. If these firms seek to expand into brokerage and custody services, they may need to obtain Information Security Management System certification and complete virtual asset service provider registration. BitGo Korea — a joint venture between global custody firm BitGo and Hana Financial Group, with SK Telecom among its shareholders — received preliminary ISMS certification last year but has yet to obtain a virtual asset service provider license.

"If a foreign market maker sets up a local entity and wants to offer brokerage, custody or over-the-counter trading, it will need to go through ISMS certification and virtual asset service provider registration depending on its business model," another industry official said. "With the licensing framework still unclear, it could realistically take two to three years before they are actually up and running."


kyoung@heraldcorp.com