Summary of Key Points
In July 2026, the South Korean stock market (especially technology stocks such as SK Hynix and Samsung) experienced a sharp decline, with daily circuit breakers and numerous young investors losing all their savings. The underlying cause was the influence of cryptocurrency traders on the stock market: they adopted trading strategies from the crypto world, including using leverage, chasing "AI narratives," and seeking consensus through social media. This led to even greater volatility in technology stocks than in Bitcoin, making the stock market increasingly similar to the crypto sector—where storytelling became more important than financial performance. Leverage amplified risks, ultimately triggering a collective collapse.
I. The "Stock Trading Nightmare" for South Korean Young People: Leveraged ETFs as a Disaster Trigger
The direct trigger for this market crash was leveraged ETFs on individual stocks. In May 2026, the South Korean exchange approved 16 leveraged ETFs that offered a two-fold return on investment (meaning a 2% gain if the stock price rose by 1%, and a 2% loss if it fell by 1%). Retail investors went crazy, spending 14 trillion won (about 64 billion yuan) in just two months, seven times more than foreign investors.
However, these ETFs had a fatal flaw: the position needed to be recalibrated daily. For example, if a stock price dropped by 10% and then rose by 11.1%, the stock's value returned to its original level, but the leveraged ETF would first lose 20% and then gain only 22.2%, resulting in an overall loss of 2.2%. During a crash, things became even worse: to maintain leverage, the ETFs were forced to sell stocks, causing the price to drop further, leading to a vicious cycle.
As a result, 1.2 million leveraged accounts had their margins called, and 320,000 to 460,000 accounts were automatically liquidated. Sixty-two percent of these account holders were young people aged 20-30. Some lost the down payment for their homes, others took out loans to invest in stocks, and there was even a case where a young man stabbed a YouTuber after losing money following his advice. Such scenarios were previously seen only in the crypto world but are now happening in the stock market as well.
II. Crypto Traders "Infiltrating" the Stock Market: Copying Crypto Trading Tactics
In the second half of 2025, with little momentum in the crypto market (Bitcoin was trading sideways and meme coins were losing value), a group of experienced traders and influencers moved to the U.S. stock market. They brought with them not only their capital but also the entire set of crypto trading strategies:
- Chasing Narratives: Investors focused on potential stories rather than company profits. For instance, they argued that AI needed more storage chips (HBM), leading to a surge in demand for Samsung and SK Hynix stocks, with the belief that "storage will always be in short supply" becoming widespread.
- Using Leverage: Used to trading crypto, they adopted leveraged ETFs in the stock market, thinking it was more efficient.
- Relying on Social Media: While crypto trading previously relied on Twitter and forums, stock trading now depends on YouTube and short videos. Complex company analyses were simplified to claims like "AI computing power is always insufficient" or "optical modules are crucial," attracting investors from all walks of life, even those who sold their homes to invest.
These tactics turned technology stocks into a version of the "crypto world 2.0"—with sharp rises and falls.
III. Storytelling Takes Precedence over Financial Performance: Narratives Drive Stock Prices
There's a saying in the crypto community: "Trading crypto is about trading narratives." The same is now true for technology stocks. While AI indeed has value, the market ignores whether companies can actually make money; any stock associated with AI sees its price soar. For example:
- In South Korea, parents opened stock accounts for their children, investing in Samsung and SK Hynix as a "long-term investment."
- In the U.S., companies related to AI (such as those in server, optical module, and storage chip sectors) were heavily traded, even though their businesses were still in the planning stage or had no orders.
- In the Chinese A-share market, the TMT sector accounted for 31% of the total market value, with technology stock trading volume once accounting for nearly half of the overall market. Everyone was betting on the same AI narrative.
This is similar to the surge in Doge Coin in 2021, which wasn't driven by technology but by Elon Musk's tweets. Today, technology stocks rise not because of actual performance but because of stories like "AI will rewrite everything."
IV. A Turnaround? Has Bitcoin Become a "Stable Asset"?
Previously, Bitcoin was seen as highly volatile while stocks were more stable. But now the situation has reversed:
- It took 268 days for Bitcoin to fall from its peak by half, while SK Hynix fell by 53% in just 34 days, and SanDisk by 55% in 36 days.
- In 2025, Bitcoin's volatility was 42%, compared to 63% for Tesla and 50% for Nvidia—Bitcoin's volatility is actually lower than that of these technology stocks.
- Bitwise even predicts that Bitcoin's volatility may continue to be lower than Nvidia's.
This is absurd: Bitcoin is trying to become more like a stock (with ETFs and institutionalization reducing its volatility), while technology stocks are becoming more like Bitcoin, with extreme price fluctuations driven by narratives.
V. The Stock Market "Cryptocentric": A Loss of Rationality
Although the stock market and the crypto world differ fundamentally (stocks have companies, profits, and regulation, while cryptocurrencies do not), trading methods have changed:
- In traditional stock markets, factors like PE ratios, cash flows, and financial reports are considered crucial. Now, narratives and imagination play a bigger role.
- A 5% daily fluctuation in individual stocks is considered significant; in the tech market, a 10%-15% drop is common.
- Leverage was previously used through margin trading; now, it's more often achieved through leveraged ETFs and derivatives.
- Information comes from research reports and financial reports; now, it comes from YouTubers, social media, and short videos.
The outcome is that everyone is betting on "getting out before the market crashes," but the market never refunds losses. As one South Korean investor said, "I want to go back to the days before all this, to get my money back." However, this is just a pipe dream.
Conclusion
The "cryptocentric" trend in the stock market doesn't mean stocks have become cryptocurrencies; rather, the trading logic has been dominated by crypto practices: storytelling replaces valuation, leverage amplifies risks, and social media exacerbates extreme emotions. The ultimate victims of this frenzy are often ordinary investors who don't understand the rules and follow the crowd. Next time you hear about an "AI trend" or a stock with potential for tenfold returns, ask yourself: Are you buying into a company's future, or are you betting on a bubble that could burst at any moment?