South Korea’s KOSPI suffered its worst monthly fall on record in July, plunging by more than 33%, before rebounding by 17.91% in a single session four days later. The extreme volatility has left many of the retail traders who moved from cryptocurrency into Korean technology shares with significantly less capital to invest.
The index’s July decline was steeper than the monthly falls recorded during both the 1997 Asian Financial Crisis and the 2008 Global Financial Crisis. The sell-off intensified on 28 July after reports that China had started mass-producing domestically developed chipmaking equipment. The KOSPI fell 10.8% in one session, triggering several trading halts.
Samsung Electronics and SK Hynix, the companies at the centre of South Korea’s artificial intelligence-led stock market rally over the previous year, were among the hardest hit.
Panic deepened after SK Hynix reported record quarterly revenue that nevertheless missed analysts’ expectations. From the KOSPI’s record high in June, the decline at that stage had approached 44%.
Steve Kim, chief executive and co-founder of Seoul-based blockchain research firm Four Pillars, told Bitcoin.com News that the scale of the losses was linked to the way the rally had been financed. Leveraged positions in South Korean equities reached a record 29.2 trillion won, or about $19.7bn, in early July, with a large amount concentrated in single-stock exchange-traded funds linked to Samsung Electronics and SK Hynix.
Kim said South Korea’s stock and crypto markets have generally moved independently, but share a common group of traders.
“Many of Korea’s most active crypto traders are also the same people who aggressively trade Korean equities with leverage,” he said.
Over the past year, many of those investors had shifted their attention away from cryptocurrency and towards what they considered a larger opportunity in South Korean shares. That change was reflected in data showing that Korean retail crypto trading volume fell by 28% year-on-year as money moved into semiconductor and artificial intelligence stocks.
“The recent market crash wiped out a significant portion of their capital,” Kim said. “Even if they now want to rotate back into crypto, many simply don’t have the money left to do so.”
He compared the situation with the United States, where investor interest in crypto has also weakened as money and attention have become increasingly focused on artificial intelligence.
Kim also argued that only a small proportion of investors made money from the Korean stock rally, with much of the profit going to overseas investors.
“Once again, domestic retail investors effectively became exit liquidity for overseas capital,” he said.
Record rebound fails to restore confidence
On 31 July, the KOSPI produced the biggest one-day rise in its history, gaining 17.91% and closing at 6,595.45 after adding more than 1,000 points.
Samsung Electronics rose 19.57% to 247,000 won, while SK Hynix gained 24.05% to 1.64m won. SK Hynix reached its daily upper limit for the first time in 17 years.
The speed of the rebound activated the Korea Exchange’s “sidecar” mechanism, which suspended programme trading for five minutes. It was the same type of circuit-breaker intervention that had repeatedly halted trading during the market’s decline.
Two developments helped drive the recovery. The first was the unwinding of positions held by Situational Awareness, an artificial intelligence-focused hedge fund founded by former OpenAI researcher Leopold Aschenbrenner. The fund lost 67% of its value in July after making concentrated, leveraged bets.
Margin calls forced Situational Awareness to sell its public-market holdings to Ken Griffin’s Citadel. Once those forced sales ended, one source of pressure on Samsung Electronics and SK Hynix was removed.
The second factor was an overnight rally on Wall Street. Microsoft’s better-than-expected earnings renewed confidence in spending on AI infrastructure and helped push the Philadelphia Semiconductor Index 8% higher. Amazon’s results also reinforced expectations for demand linked to the commercial use of artificial intelligence.
Meta exceeded revenue forecasts, although its shares fell because of concerns about capital spending and cash flow. That served as a reminder that the same earnings reports supporting South Korea’s recovery were also contributing to sharp swings in other markets.
The relief was short-lived. The KOSPI fell 4.86% in the following session and had declined further to 6,153.55 by 4 August, a move that continued to leave the index about 22% below its late-June level.
Kim does not believe the rebound represents a positive development for cryptocurrency. In his view, the wider market losses, combined with the prospect of 18% moves in either direction within 24 hours, have made South Korean retail investors more cautious and left them with less money to commit to any asset, including crypto.
