Cryptocurrencies begin to threaten markets and economy
Retail investors are piling into cryptocurrencies, and the effects on the financial markets and the job market are becoming very real, with funds moving away from the Korea Exchange and some people leaving their companies after having made quick fortunes.
The economy is slowly being eaten by blockchain-based assets.
A 61-year-old man who retired early last year started cryptocurrency investment in January. He put some 20 million won ($18,000) into altcoins, which are cryptocurrencies other than the original bitcoin, with the help of his children.
“I started investing in cryptocurrency as the Kospi and real estate have been bearish recently,” he said. “I haven’t seen that much gains yet, but I will continue the investment as it seems like cryptocurrency prices will increase further.”
Some Korean retail investors are getting bearish on stocks and going gaga for cryptocurrencies instead. Bitcoin is not the only popular cryptocurrency these days, and more people are turning their attention to altcoins in the hope of making quick gains.
More than 2.5 million trading accounts were registered at four major cryptocurrency exchanges in Korea — Bithumb, Upbit, Coinone and Korbit— as of end of February, according to Financial Services Commission (FSC) data.
That’s nearly double the total at the end of 2020.
Since early 2018, anyone who wants to invest in bitcoin must have an account in a commercial bank. The government required cryptocurrency exchanges to have a business relationship with banks that would issue accounts to fund trading on the exchanges.
NH Nonghyup Bank partnered with Bithumb and Coinone, Shinhan Bank with Korbit and K bank with Upbit.
Deposits in cryptocurrency trading accounts stood at 4.62 trillion won as of end of February, about 2.5-times the amount at the end of last year.
People in their 30s and 40s are the biggest players.
Those in their 30s have a total of 1.57 trillion won in their cryptocurrency accounts, and people in their 40s have some 1.23 trillion won on deposit. People in their 50s have roughly 720.1 billion won, while people in their 20s have 686.3 billion won. People aged 60 or above have 291.9 billion.
Transaction volume has been extremely high.
The total volume of cryptocurrencies traded in the first quarter of the year was some 1,486 trillion won, according to FSC data. It has already exceeded the total volume in full-year 2020, which was 357.3 trillion won.
Cryptocurrency daily volume is higher than the volume of Kospi stocks traded.
Some 25.86-trillion-won worth of cryptocurrencies were traded on April 19 as of 5 p.m., according to cryptocurrency information provider CoinMarketCap. On the same day, the trading volume of Kospi stocks was 15.17 trillion won.
Bitcoin prices, which broke $33,000 in early February, broke the $64,000-threshold on April 14.
The prices of altcoins have been increasing more dramatically.
Dogecoin traded at an all-time high of $0.45 on April 16, some 9,500 percent up compared to the beginning of the year.
Meanwhile, the main Kospi index has traded poorly over the past few weeks.
Deposits in stock trading accounts was 65.65 trillion won as of April 15, compared to 74.46 trillion won on Jan. 12, according to Korea Financial Investment Association.
In January, Korean retail investors on average purchased some 1.29-trillion-won worth of shares every day. But the amount of daily purchase declined to some 20 billion won in April.
“Retail investors who entered stock market last year expected some 30 percent to 40 percent of gains,” said Hwang Sei-woon, a research fellow at the Korea Capital Market Institute. “But since the main index turned weak, some seeking high profits moved to the cryptocurrency market.”
The fear-of-missing-out epidemic is another contributing factor.
Reports of people quitting their jobs after earning billions of won through cryptocurrency investment can be found on the internet.
A Samsung employee on April 3 posted a message on Blind, a social media application specifically for the gainfully employees. It said a Samsung Electronics employee, who works for the semiconductor team, plans to quit his job after earning some 40 billion won through bitcoin investment. His seed money was about 200 million won. People who write on Blind must verify their name and employer.
The company declined to confirm the information, but a few days later a letter to colleagues was posted in the internet that may have been from the employee.
“I’m writing this to thank you all as I’m about to quit the company as of April 15 due to personal issues,” the letter read. “I was happy that I could work with all of you, and thank you all for the encouragement and education you gave me so far.”
A 37-year-old office worker recently sold 30-million-won worth of shares and put them in cryptocurrencies. He invested in altcoins that are not that familiar to retail investors, such as MiL.k Coin and MediCoin.
“I don’t think I could expect big gains from cryptocurrencies that have already experienced a surge in prices,” he said. “Dogecoin unexpectedly rose some 100 percent recently. If the price of only one of the cryptocurrencies that I invested in could increase, I would be able to make up the losses and even be left with some gains.”
Experts argue that proper regulations to monitor cryptocurrency market are essential at the moment.
Cryptocurrencies are risky assets with high volatility. While about 230 new cryptocurrencies were listed last year, 97 were delisted.
“As more investors have been putting their money in the cryptocurrency market recently, it is time for the government to consider coming up with measures to protect investors from risk,” said lawmaker Kim.
Kim Hyoung-joong, a cybersecurity professor at Korea University and also head of the Cryptocurrency Research Center, agrees with lawmaker Kim.
“As so many altcoins have been experiencing surges in prices, many investors have been putting their money into them,” said professor Kim. “The government must take a move to protect retail investors by introducing new regulations such as requiring exchanges to reveal more information about cryptocurrencies to the public."
BY AHN HYO-SUNG, CHEA SARAH [firstname.lastname@example.org]