Dreams Destroyed: Young Koreans’ Leveraged Investments Backfire

October 27, 2022

SEOUL – When stock and crypto markets were hot and borrowing costs were cheap, many young South Koreans, who usually had a high appetite for risk but little capital to invest, tried their hand at investing leverage, known as “bittoo” in Korean.

Many of these young investors had dreamed of getting rich quick and retiring young to become a new member of the “FIRE tribe” – the acronym for financially independent, retiring early.

But many are suffering now, as markets have crashed and interest rates have risen.

Among them is Jeong, who works at an IT company. He said he left the online and YouTube communities where he used to go daily to gather investment advice and information.

About 90 million won ($62,700) has been cleared of his investment in digital coins through Korea-based cryptocurrency exchanges Upbit and Bithumb. Two-thirds of this sum – 60 million won – was not his money, but borrowed from banks and a brokerage house.

“I should have quit when I lost 30 million won. But I decided to invest on leverage to recoup the principal and ended up losing everything,” he said. “I won’t go near stocks and coins from now on.”

A 29-year-old man named Kim, who started working two years ago, saw four months of salary wiped out by equity investments.

The biggest loss came from an exchange-traded fund leveraged on US tech stocks, which has fallen 83.31% since it began investing in the product in mid-2021.

“It was time for me to think about the investment because my salary remains almost stable and garden hose prices are increasing and I am reaching the age of marriage,” he said.

The country’s benchmark, the Kospi, fell.

After topping 3296.17 points on August 5 last year, the index lost 32.8% to end at 2213.12 points on Friday. Retail investors in their 20s and 30s make up 41% of the total number of people investing in Kospi, according to the Korea Securities Depository.

Data shows that more young investors have been attracted to the “bittoo” strategy in recent years.

At the end of 2020, 319,232 equity investors under the age of 30 took out securities-linked loans from more than three financial institutions. By June this year, that number had risen 21% to 387,021, according to data from the Financial Monitoring Service.

During the same period, other age groups reported an average increase of 5%, showing the disproportionate popularity of “bittoo” among young people in 2021, when the prices of stocks and digital coins soared. sharply.

The situation is even worse in more volatile cryptocurrency markets.

The Bitcoin price is 27,720,000 won as of 2 p.m. Tuesday, down 63.5% from 75,988,000 won on November 12.

As the heavy losses of young traders due to digital coins have become a social issue, the South Korean government has come up with a debt relief plan for them.

Part of a large rescue program for vulnerable groups, it allows indebted people under the age of 35 to benefit from a reduction of up to 50% in interest payments and provides for an extension of the maturity of debt for up to 3 years during which an interest rate of 3.2 percent will apply.

In a similar measure of support for young people in debt, the Seoul Bankruptcy Court pays particular attention to debts arising from investments in digital stocks and coins.

“From July 1, when applying for personal bankruptcy, losses incurred by investing in virtual currency (cryptocurrency) or stocks will not be included in the reimbursement amount that the debtor will have to repay. in the future,” he said.

According to the court, bankruptcy filings for 20-somethings fell from an average of 245 cases per month in the first half of 2022 to 322 cases in July and 315 cases in August. The proportion of people in their twenties was 19.6% of the total number of bankruptcy applications. This is a strong increase from 10.7% in 2020.

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