Young crypto investors face repercussions in their personal lives

An electronic display at a crypto exchange in southern Seoul shows the prices of cryptocurrencies on July 28. [NEWS1]

The instability in the crypto market is devastating young punters in their 20s and 30s who took out excessive loans in the hopes of making their fortunes.

The crypto meltdown has led to divorces, evictions and the breakdown of relationships as pressure mounts with rising loan rates from the global central banks’ hawkish monetary policy to tame inflation.

The crypto market melted this year, accelerated by the Terra crash in May. Bitcoin now trades for less than half its value since its peak last November.

A 38-year-old office worker surnamed Lee bought crypto last summer while his wife was pregnant with the couple's third child. As the value of crypto jumped last year on the massive rally of stock and crypto markets, Lee took out unsecured loans and increased his investment, without his wife’s knowledge.

When the crypto market nosedived right before the birth of their third child, Lee took out additional loans to trade crypto futures, only to lose all the money. Lee’s wife demanded a divorce, and his angry parents refused to let him stay at their home. He now pays 15,000 won ($11.50) a night to sleep in a motel.

“I never expected this to happen within a year. People around me only said that they earned a big fortune,” Lee said.

Another 34-year-old punter, who lost his jeonse (housing) deposit right before getting married, traded coins recommended by his acquaintances. He lost half the money and his fiancé called off their marriage.

“I wouldn’t have invested excessively if housing prices had not increased so rapidly,” he said, adding that he feels outraged more than regretful.

More than 7,590 people in their 20s applied for debt settlement this year, up 28.3 percent from 2019, according to data from the Credit Counseling and Recovery Service.

This all-in mentality from young traders isn’t unprecedented. It was seen before with the dot com bubble.

“People in their 20s and 30s are always at the center of investment frenzies,” said Hong Chun-uk, a former economist at KB Kookmin Bank, referring to the dot com bubble and young people's use of credit card loans for aggressive investment. “Since they don’t have much capital, they use leverage to make big profits, leaving them more vulnerable.”

Some question if the government’s support measures to help young investors recover are in fact triggering them to invest more aggressively in times of bubbles.

The government announced plans to cut interest payments by as much as 50 percent for investors aged 34 or under and with low incomes and low credit scores earlier this month. The Seoul Bankruptcy Court also announced it would exclude crypto traders’ losses when they apply for individual rehabilitation programs from July 1.

This means if the value of the crypto invested by a trader that withdrew loans shrinks to one million won from an original amount of 50 million won, the court will only require the debtor to pay back one million won.

“The number of bankruptcy filings is projected to jump explosively in the second half,” said the court, citing steep inflation and the rising interest rate.

“Investors in their 20s and 30s without much experience and knowledge in finance are more easily swept up by the investment frenzy because finance isn’t taught at school, unlike in developed nations, like Britian, where finance is included as a required subject,” said Kim Ja-bonn, a senior research fellow at the Korea Institute of Finance.

BY KIM YEON-JOO, JIN MIN-JI [jin.minji@joongang.co.kr]