July's decline in the KOSPI surpassed the monthly drops recorded during the Asian Financial Crisis of 1997 and the Global Financial Crisis of 2008, making July the worst month in the index's history. The decline intensified recently, starting on July 28, when news that China had commenced mass production of its own chip manufacturing equipment caused the index to fall 10.8% in a single trading session, simultaneously triggering multiple trading halts.
The hardest hit were the stocks of Samsung Electronics and SK Hynix—two companies that had been the driving force behind the Korean market's growth over the past year, fueled by artificial intelligence development. SK Hynix's unexpectedly low financial results—a record quarterly revenue that still fell short of analyst forecasts—exacerbated the panic the next day, which, measured from June's record high, meant the decline had approached 44%.
The Leverage Effect That Fueled the Rally, and the Crash
Steve Kim, CEO and co-founder of Four Pillars, a Seoul-based blockchain research company, told Bitcoin.com News that the reasons for the damage lie in how the market growth itself was formed: namely, the amount of leveraged open positions on Korean stocks reached a record 29.2 trillion won (approximately $19.7 billion) in early July, with a significant portion of this sum concentrated in ETFs tied to Samsung and SK Hynix stocks. He added:
Many young investors opened leveraged positions on Samsung Electronics and SK Hynix stocks, expecting the rally to continue. There's a clear generational divide in investor sentiment. Young investors suffered much heavier losses, while older investors generally found themselves in a better position.
Furthermore, Kim emphasized that the Korean stock and cryptocurrency markets have historically developed mostly independently, but they are connected through a shared pool of traders. "Many of the most active Korean cryptocurrency traders are the same people who actively trade Korean stocks using leverage," he noted, adding that over the past year, many of them shifted their focus from cryptocurrencies to what they perceived as more promising—Korean stocks.
This shift aligns with data showing that retail cryptocurrency trading volume in Korea decreased by 28% year-on-year as capital flowed into semiconductor and AI-related stocks.
"The recent market crash wiped out a significant portion of their capital," Kim said. "Even if they want to return to cryptocurrencies now, many simply don't have the money left to do so." He drew a direct parallel to the United States, where interest in cryptocurrencies similarly waned as capital and attention focused on artificial intelligence.
Finally, Kim spoke candidly about the net effect on the industry, stating that only a small percentage of investors actually profited from the Korean stock market's rise, with the majority of that profit going to foreign investors. "Once again, domestic retail investors essentially became a source of liquidity for the withdrawal of foreign capital," he opined.
The 18% Reversal Shows How Unpredictable This Market Has Become
Four days after the KOSPI recorded its worst month in history, the index showed the sharpest single-day trend reversal in its history. On July 31, the index rose 17.91%, closing at 6,595.45 after a gain of over 1,000 points—the largest single-day jump on record. Samsung Electronics shares rose 19.57% to 247,000 won, and SK Hynix rose 24.05% to 1.64 million won, hitting the daily upper limit for the first time in 17 years. The rise was so sharp that it triggered the Korean Stock Exchange's "sidecar" mechanism, which halted program trading for five minutes—the same protective mechanism that repeatedly "froze" the index during the decline.
Two forces coincided to cause this surge: first, the liquidation of positions by Situational Awareness—a hedge fund specializing in AI, founded by former OpenAI researcher Leopold Aschenbrenner, which lost 67% of its value in July due to concentrated leveraged bets. To elaborate, margin calls forced the fund to liquidate its public positions in favor of Ken Griffin's Citadel, and once this forced selling was completed, one pressure factor on Samsung and SK Hynix disappeared.
The second factor was an overnight rally on Wall Street, where Microsoft's strong financial results renewed confidence in AI infrastructure spending and drove the Philadelphia Semiconductor Index up 8% (while Amazon's results confirmed demand for AI monetization). Meta also surpassed revenue forecasts, though its own stock fell due to cash flow concerns related to capital expenditures, a reminder that even financial results that calmed the Korean market itself caused sharp swings in investor sentiment elsewhere.
However, the relief was short-lived, and in the next session, the KOSPI fell 4.86%, and by August 4, it had fallen further to 6,153.55 points (a trend that continues to this day), still about 22% below the level of late June.
Regarding the outlook, Kim does not see this reversal as a hidden positive for cryptocurrencies, as he believes that instead of freeing up capital for asset rotation, the large-scale crash (now compounded by a market capable of swinging 18% in either direction within 24 hours) makes Korean retail investors more risk-averse and leaves them with less capital to invest in any assets, including cryptocurrencies.
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