Last Sunday, NVIDIA CEO Jensen Huang flew to Seoul to have dinner with SK Group Chairman Chey Tae-won and SK Hynix CEO Kwak Noh-jeong. After the meal, NVIDIA and SK Hynix officially announced a multi-year technology cooperation agreement. Huang publicly stated that AI company stock prices are currently very low and that the shortage of memory chips will continue for several years.

However, on Monday, the KOSPI fell rapidly by over 8.8% at the opening. Samsung Electronics once plunged 10%, and SK Hynix dropped nearly 10%. The Korea Exchange triggered a circuit breaker, halting all market trading and marking the largest single-day decline since the start of this bull market. South Korean President Lee Jae-myung stated that the South Korean stock market is still undervalued. By the close today, the KOSPI surged 8.18%, SK Hynix rebounded 15.91% in a single day, and Samsung Electronics rose 8.97%.

According to Goldman Sachs data, foreign investors have cumulatively net sold 75 billion US dollars of South Korean stocks year-to-date, with global investors selling South Korean stocks at an unprecedented pace. In contrast, domestic retail and institutional investors have cumulatively net bought approximately 69 billion US dollars during the same period, continuously absorbing selling pressure from foreign investors. Meanwhile, the margin balance in the South Korean stock market has soared to a historical record, with a large amount of capital flowing into the stock market through indirect channels.

South Korea was once one of the markets with the highest density of retail crypto investors and the most extreme sentiment globally. Upbit’s spot trading volume once ranked second globally, only behind Binance. The price of crypto assets like Bitcoin on South Korean domestic exchanges has long been about 10% higher than on other global exchanges. This price difference, known as the Kimchi premium, is the most direct measure of the FOMO sentiment among South Korean retail investors.

Starting from 2025, this capital began a significant systemic migration. Data shows that the total value of crypto holdings by South Korean investors plummeted from approximately 83.3 billion US dollars in January 2025 to about 41.4 billion US dollars in February 2026, a decrease of over 50%. Among these, Upbit’s average daily trading volume fell from about 9 billion US dollars in December 2024 to less than 1.8 billion US dollars in November 2025, a contraction of nearly 80%. During the same period, the KOSPI, South Korea’s composite stock market index, climbed from its low in April 2025, with a cumulative increase of over 280%. The margin balance reached a record high of 38 trillion Korean won by the end of May this year, and the personal credit loan balance of the five major banks surged to over 106 trillion Korean won.

Many investors who were previously active in meme coins and altcoins have shifted to buying semiconductor stocks on margin. This shift has permeated the daily lives of Koreans. Office workers check market trends on their phones on the subway or in restroom stalls, elderly people discuss Samsung’s stock performance while queuing at supermarkets, and the number of new accounts opened by minors under 18 has increased nearly tenfold year-on-year. At shareholder meetings of large listed companies like Samsung Electronics, it is common to see shareholders who are elementary school students or even preschoolers. Young parents are popular for opening stock accounts for their children on the day they are born and buying semiconductor stocks. According to KB Securities analysis, Samsung Electronics ranked first in stock gift services for minors around Children’s Day this year, accounting for 56.3% of transactions.

Three forces are simultaneously driving this capital migration. First, the industry narrative is sufficiently robust. Samsung Electronics’ operating profit in the first quarter of 2026 surged by 756% year-on-year, reaching a new historical high; SK Hynix’s quarterly revenue increased by 198% year-on-year, setting a new record for four consecutive quarters. The explosion in global AI computing power demand provides real support for the fundamentals of these two companies for a considerable period. During his visit to South Korea, Huang clearly stated that the entire industry, from wafers to packaging to silicon photonics, is facing shortages in almost every segment, and this situation will continue for several years.

Second, the government is actively promoting the market. The Lee Jae-myung administration has set a target of 5000 points for the Korean stock market, revised commercial laws to require listed companies to cancel treasury shares from repurchases, and is promoting dividend tax reform, turning wealth effects into a component of governing legitimacy. On the day the market circuit breaker was triggered, Lee Jae-myung still stated at a press conference marking his one-year anniversary in office that the stock market was undervalued. Such policy signals provide a layer of psychological security for South Korean retail investors who have experienced exchange hacks and the Terra/Luna collapse.

Third, friction on the crypto side continues to accumulate. A 22% tax on crypto gains has been confirmed to take effect in January 2027. Regulatory authorities are simultaneously advancing new anti-money laundering rules, and the second-largest exchange, Bithumb, has been penalized with a six-month suspension of partial operations. The threshold for entering crypto has been raised, while the threshold for stock leverage has been relatively lowered. It is worth noting that data shows that individuals over 60 years old hold nearly one-third of the margin balance. The margin debt for this group has doubled from approximately 3.95 trillion Korean won to 8 trillion Korean won within a year, including retail investors who have cashed out life insurance policies to enter the market after incurring losses. 40% of retail investors under 30 use leverage of 3 times or more, and some investors are cashing out consumer loans and credit cards to increase their positions. This demographic combination is highly similar to the entry structure during the crypto bull market peak in 2021, with non-professional investors driven by wealth narratives. They are betting on a single sector with leverage exceeding their risk tolerance, choosing to believe that this is a once-in-a-lifetime opportunity.

The underlying logic of Koreans trading crypto is no different from their current stock trading. High technological acceptance, an extremely competitive social environment, and nearly closed channels for upward mobility have collectively shaped a group of retail investors with a natural preference for high-volatility assets. The inflow and outflow of funds from South Korean retail investors have long served as an early signal for the direction of global high-risk appetite retail capital flows. Among major global crypto markets, the United States has entered an institution-led phase, with annualized inflows into spot Bitcoin ETFs exceeding 150 billion US dollars at the start of 2026, concentrating pricing power towards institutions. Hong Kong and Singapore are focusing on compliant infrastructure and stablecoin frameworks, with limited retail participation. Southeast Asian retail investors are active but fragmented in volume, and the regulatory environment is relatively unstable. South Korea is almost the only market that possesses high retail density, a strong speculative culture, centralized exchange infrastructure, and extreme sensitivity to global macro narratives simultaneously.

However, Tiger Research points out that the South Korean crypto market is undergoing a power shift. The era of retail dominance is ending, and traditional financial institutions have seized key infrastructure before regulatory clarity. The total trading volume of South Korea’s five major crypto exchanges has decreased by approximately 48% year-on-year in the past six months. The Kimchi premium has also continuously narrowed from its high of about 10%, and has even fallen into negative territory. Financial reports show that Upbit’s operator Dunamu’s revenue decreased by about 10% year-on-year in 2025, and its profit in Q1 2026 decreased by about 78% year-on-year.

Despite this, Hana Bank still acquired a 6.55% stake for approximately 720 million US dollars, Hanwha Investment & Securities increased its stake to 9.84%, and Samsung Securities, Samsung SDS, and Samsung Card jointly invested over 400 million US dollars to acquire a 4% stake in Dunamu. Mirae Asset acquired over 90% controlling stake in Korbit for about 100 million US dollars, and Korea Investment & Securities and OKX Ventures jointly invested in Coinone for nearly a 40% stake. These traditional giants view exchanges as strategic stepping stones for STO, stablecoin, and custody businesses. Analysis suggests that these acquisitions are less about seizing market share and more about designing regulation – institutions are securing favorable arrangements before regulations are finalized, and then using these arrangements to influence the shape of the final framework. Currently, the South Korean crypto market has 150 participating institutions and 196 partnerships, but no single hub has achieved dominant control. Even the strategies of overseas project teams entering the market are changing. Solana has partnered with Shinhan Card, and Avalanche has partnered with Mirae Asset, shifting their focus from retail communities to financial institutions. On the policy front, the South Korean government has proposed in its 2026 economic growth strategy to advance the launch of spot ETFs for digital assets like Bitcoin this year and for the Financial Services Commission to accelerate the second phase of digital asset legislation.

South Korea’s speculative culture has never disappeared; it’s just that the current stock market leverage boom has diverted some crypto funds. The South Korean crypto market is experiencing a trend of “retail outflow, institutional inflow.” When the KOSPI truly begins a deleveraging process, where that high-risk appetite capital will seek its next exit is a question that the crypto market should continue to track.

[ChainCatcher]