South Korea’s KOSPI crashed more than 33% in July, its worst monthly drop on record, then reversed it with an 18% single-day surge on the last day of the month.
Key Takeaways
South Korea’s KOSPI rebounded 18% on July 31, its biggest one-day jump ever, after a 33% crash over the rest of the month.Leopold Aschenbrenner’s AI fund sold to Citadel and a Microsoft earnings beat fueled the July 31 rebound.KOSPI still sits about 22% below its June close, and Four Pillar’s Steve Kim says traders remain too broke for crypto.Samsung Electronics and SK Hynix, the two stocks that had powered Korea’s AI-driven rally over the past year, absorbed the worst of it. SK Hynix’s earnings miss, a record quarterly revenue that still fell short of analyst estimates, deepened the panic the following day, which, measured from June’s record high, suggested the drawdown had approached 44%.
The Leverage That Powered the Rally, and the FallSteve Kim, chief executive and co-founder of Four Pillars, a Seoul-based blockchain research firm, told Bitcoin.com News that the damage traces back to how the rally itself was built, i.e. outstanding leveraged bets on Korean equities hit a record 29.2 trillion won (roughly $19.7 billion) in early July, with much of it concentrated in single-stock ETFs tied to Samsung and SK Hynix. He further added:
Many younger investors had taken leveraged positions in Samsung Electronics and SK Hynix, expecting the rally to continue. There is definitely a generational divide in sentiment. Younger investors have been hit much harder, while older investors tend to be in a better position.
Moreover, Kim highlighted that Korea’s stock and crypto markets have historically moved largely independently, but the two are connected through a shared pool of traders. “Many of Korea’s most active crypto traders are also the same people who aggressively trade Korean equities with leverage,” he pointed out, while also noting that over the past year, many of them shifted focus away from crypto toward what they saw as a bigger opportunity in Korean stocks.
That shift lines up with data showing Korea’s retail crypto trading volume fell 28% year-over-year as capital rotated into semiconductor and AI names.
“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 drew a direct parallel to the US, where crypto attention has similarly faded as capital and focus concentrated in AI.
Lastly, Kim was blunt about the net effect on the industry, claiming that only a small percentage of investors actually profited from the Korean stock rally, with much of those gains going to foreign investors. “Once again, domestic retail investors effectively became exit liquidity for overseas capital,” he opined.
Looking ahead, Kim does not see the reversal as a hidden positive for crypto because, rather than freeing up capital for a rotation, he believes the broader wipeout (now compounded by a market that can swing 18% in either direction inside 24 hours) leaves Korean retail investors more risk-averse and with less money to deploy anywhere, crypto included.
