$75 billion in foreign capital has fled, and South Korean retail investors have absorbed it all using leverage

Author: Zhou, ChainCatcher

Last Sunday, NVIDIA CEO Jensen Huang arrived in Seoul and had dinner with SK Group Chairman Chey Tae-won and SK Hynix CEO Lee Seok-hee. After the meal, NVIDIA and SK Hynix officially announced a multi-year technology cooperation agreement, and Jensen Huang publicly stated that AI company stock prices are currently very low, and the shortage of memory chips will last for several years.

However, on the following Monday, the KOSPI quickly dropped over 8.8% at the opening, with Samsung Electronics plunging 10% at one point, and SK Hynix falling nearly 10%. The Korean Exchange triggered a circuit breaker, halting trading across the market, marking the largest single-day decline since this bull market began.

Korean President Lee Jae-myung stated that the Korean stock market is still undervalued. By the close today, the KOSPI surged 8.18%, with SK Hynix rebounding 15.91% in a single day, and Samsung Electronics rising 8.97%.

According to Goldman Sachs data, foreign investors have cumulatively net sold $75 billion worth of Korean stocks this year, with global investors selling Korean stocks at an unprecedented pace. In contrast, local retail and institutional investors in Korea have cumulatively net bought about $69 billion during the same period, continuously absorbing the selling pressure from foreign capital.

At the same time, the financing balance in the Korean stock market has surged to a historical record, with a large amount of capital flowing into the stock market through alternative channels.

Korean Crypto Funds Shift to Stock Market: Holdings Halved, Trading Volume Evaporated by 80%

Korea was once one of the markets with the highest density of crypto retail investors and the most extreme sentiment globally. Upbit's spot trading volume once ranked second in the world, only behind Binance. The prices of cryptocurrencies like Bitcoin on Korean exchanges have long been about 10% higher than those on other global exchanges, a price difference known as the "kimchi premium," which is the most intuitive pricing method reflecting the FOMO sentiment of Korean retail investors.

Starting in 2025, this batch of funds began a noticeable systemic migration. Data shows that the total value of crypto holdings by Korean investors plummeted from about $83.3 billion in January 2025 to about $41.4 billion in February 2026, a decline of over 50%. Among them, Upbit's average daily trading volume dropped from about $9 billion in December 2024 to less than $1.8 billion in November 2025, shrinking by nearly 80%.

During the same period, the Korean Composite Index KOSPI rose sharply from a low point in April 2025, with a cumulative increase of over 280%. The financing balance surged to a record 38 trillion won by the end of May this year, and the personal credit loan balance of the five major banks skyrocketed to over 106 trillion won. Many investors who were once active in meme coins and altcoins have turned to leverage buying semiconductor stocks.

This shift has permeated the daily lives of Koreans. Office workers check market trends on the subway or in restroom stalls, elderly people discuss Samsung's stock performance while waiting in line at supermarkets, and the number of new accounts opened by minors under 18 has surged nearly tenfold year-on-year. At shareholder meetings of large listed companies like Samsung Electronics, it is common to see elementary school students and even preschool children as shareholders. Young parents are increasingly opening stock accounts for their children on the day they are born, buying semiconductor stocks.

According to KB Securities analysis, among the stocks gifted to minors through stock gift services around Children's Day this year, Samsung Electronics ranked first with 56.3% of the transaction volume.

Korean Stock Investors Are Leveraging Retirement Funds and Credit Loans

Three forces are simultaneously at work behind this capital migration.

The first is that the industrial narrative is strong enough. Samsung Electronics' operating profit in Q1 2026 surged 756% year-on-year, reaching a historical high; SK Hynix's quarterly revenue increased by 198% year-on-year, setting records for four consecutive quarters. The explosion in global AI computing power demand has provided real support for the fundamentals of these two companies for a considerable period. During his visit to Korea, Jensen Huang clearly stated that the entire industry is facing shortages at almost every stage, from wafers to packaging to silicon photonics, and this situation will last for several years.

The second is that the government is actively bullish. The Lee Jae-myung government has set a target of 5,000 points for the Korean stock market, revised commercial laws to require listed companies to cancel repurchased treasury stocks, and promoted dividend tax reforms, turning the wealth effect into a component of governance legitimacy. On the day of the market circuit breaker, Lee Jae-myung still stated at a press conference marking his anniversary that the stock market is undervalued. This policy signal provides a layer of psychological security for Korean retail investors who have experienced the collapse of crypto exchanges and the Terra/Luna crash.

The third is that friction on the crypto side continues to accumulate. A 22% crypto income tax 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 faced a six-month partial business suspension penalty, raising the entry threshold for crypto while lowering the leverage threshold for the stock market.

It is worth mentioning that data shows that nearly one-third of the financing balance is held by individuals aged 60 and above, with this group's financing debt doubling within a year from about 39.5 trillion won to 80 trillion won, including retail investors who have suffered losses and withdrawn cash value from life insurance to enter the market. 40% of retail investors under 30 are using leverage of more than three times, with some investors using consumer loans and credit cards to increase their positions.

This demographic composition is highly similar to the entry structure at the peak of the 2021 crypto bull market, driven by non-professional investors motivated by wealth narratives. They are betting on a single track with leverage beyond their risk tolerance, choosing to believe that the current moment is a once-in-a-lifetime opportunity.

Kimchi Premium Approaches Freezing Point

Ultimately, the underlying logic of Koreans trading crypto is not fundamentally different from their current stock trading. High acceptance of technology, an extremely competitive social atmosphere, and nearly closed channels for upward social mobility have collectively shaped a retail investor group with a natural preference for high-volatility assets.

Moreover, the inflow and outflow of funds among Korean retail investors have long become an early signal of the global flow of high-risk preference retail capital.

In major global crypto markets, the U.S. has entered an institution-led phase, with Bitcoin spot ETF annualized inflows exceeding $150 billion at the start of 2026, concentrating pricing power among institutions. Hong Kong and Singapore focus on compliance infrastructure and stablecoin frameworks, with relatively limited retail participation. Southeast Asian retail investors are active but dispersed, and the regulatory environment is relatively unstable.

Korea is almost the only market that simultaneously possesses high retail density, a strong speculative culture, centralized exchange infrastructure, and extreme sensitivity to global macro narratives.

However, Tiger Research points out that the Korean crypto market is undergoing a power shift. The era dominated by retail investors is ending, and traditional financial institutions have seized key infrastructure ahead of clear regulations.

In the past six months, the total trading volume of Korea's five major crypto exchanges has decreased by about 48% year-on-year. The kimchi premium has also continued to narrow from about 10% at its peak and has even fallen to negative values.

Financial reports show that Upbit operator Dunamu's revenue decreased by about 10% year-on-year in 2025, and in Q1 2026, profits fell by about 78% year-on-year.

Image source: RootData

Despite this, Hana Bank still acquired a 6.55% stake for about $720 million, Hanwha Investment & Securities increased its stake to 9.84%, and Samsung Securities, Samsung SDS, and Samsung Card collectively invested over $400 million to acquire a 4% stake in Dunamu.

Future Assets acquired over 90% of Korbit's controlling stake for about $100 million, while Korea Investment & Securities and OKX Ventures jointly acquired nearly 40% of Coinone.

These traditional giants view exchanges as strategic springboards for STOs, stablecoins, and custody services.

Analysts say that these acquisition moves are less about seizing the market and more about designing regulations—institutions are preemptively securing favorable arrangements before regulatory decisions are made, and then using these arrangements to influence the final framework's shape.

Currently, there are 150 institutions participating in the Korean crypto market, with 196 partnerships, but no single hub has gained dominant control. Even the strategies of overseas projects entering the market are changing, with Solana collaborating with Shinhan Card and Avalanche partnering with Future Assets, shifting the focus from retail communities to financial institutions.

On the policy front, the Korean government has proposed in its 2026 economic growth strategy to advance the implementation of Bitcoin and other digital asset spot ETFs this year, and the Financial Services Commission is accelerating the second phase of digital asset legislation.

Conclusion

Korea's speculative culture has never disappeared; it has simply diverted some crypto funds due to the current stock market leverage craze, while the Korean crypto market is experiencing a trend of "retail investors retreating and institutions entering."

When the KOSPI truly begins the deleveraging process, where that batch of high-risk preference capital will seek its next outlet is a question worth continuous tracking in the crypto market.

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