Crypto crazy

Kim Chang-gyu
The author is the economic new editor of the JoongAng Ilbo.

A thirtysomething employed in a large company said he often hears stories about someone earning more than annual salary from stocks or buying a home with cryptocurrency gains. He also invests in some stocks with savings, but he regrets for not having done enough whenever he sees a colleague quitting their job after earning big money from cryptocurrency deals. Digital coins have become the key topic among people in their 20s and 30s. The FOMO, or fear of missing out, syndrome grips one upon hearing others making big money easily.

The storm of asset frenzy has spilled over from housing to stocks and cryptocurrencies. Trade turnover in digital tokens per day reached 25 trillion won ($22 billion), exceeding volume on the Korea exchange. The number of accounts opened for digital coin exchanges topped 2.5 million in February, doubled from two months ago. Citizens in their 20s and 30s were behind 64 percent of the new openings. Deposits for investment totaled 4.6 trillion won, nearly tripling from December. The most popular crypto price has doubled from the beginning of the year. This only can be described as a mania.

The young despaired when they could not join the house buying spree as its members had not worked long enough to afford the down payment. They instead went after stocks and made profits. When the stock market stagnated, they moved to the digital token market.

The government remains stern. It warns that cryptocurrency is virtual asset without intrinsic value and highly speculative. Financial Services Commission Chairman Eun Sung-soo made it clear that the government cannot protect investors in intangible assets. His comment angered the young investors who posted a petition demanding Eun’s resignation at the Blue House’s home page.

In an op-ed for the New York Times, Robert Schiller, a Noble Prize-winning Sterling professor of economics at Yale University, introduced a song by Eddie Cantor released in 1929 titled “I Faw Down an’ Go Boom!” He sings about how flat broke he has become after investing in stocks to the extent of losing shirt and socks “because as soon as I buy stocks, they fall down and go boom.” Although he cannot point to signs to predict a crash like in 1929, the economist said he won’t be surprised if the market suddenly collapses.

Many experts find a similar pattern as in the roaring 1920s. After the deadly Spanish flu that killed 50 million over two years since 1918, pent-up spending and investment burst out in the 1920s. Stocks globally rose rapidly. But the stock market crash of 1929 led to the Great Depression.

The Wall Street Journal said that investors were betting on the “Everything Rally,” piling into everything from bitcoins to raw materials and emerging markets. There are fears the global asset market could has already become bubbly.

Home trade counts in the U.S. have surged to the highest level since 2006, when the subprime mortgage crisis exploded. Lumber prices soared 57 percent this year to all-time highs. Home prices are galloping away in Korea, New Zealand, Canada and others. Prices of grain, cooper and crude oil also have jumped. Stock markets are setting new records around the globe. S&P 500 index hit new records 23 times. Schiller noted the annual gross return rate of S&P 500 has reached 12 percent on average over the past 10 years, tripling the real value of their invested assets. He found similarities to the “roaring twenties” just before the U.S. Great Depression.

Asset markets are boiling at the same time because governments around the world have unleashed unprecedented liquidity to fight Covid-19. The ample liquidity has fed asset values, and money chases after assets that can go higher. The crypto fad syndrome is the result. Many worry that the crypto frenzy can cause an upset to the financial market due to lack of regulations. Authorities in Korea keep to the sidelines arguing that the crypto investors are not “legitimate players.” But digital tokens are not the same as the ones three to four years ago. The number of investors has already hit 5 million. If they panic, so will the Korean economy.