KOSPI sinks nearly 10% after watchdog flags leveraged-ETF misstep; Bitcoin slips below $63,000
South Korea's benchmark KOSPI tumbled almost 10% on Tuesday, briefly triggering a market-wide trading halt, a day after the country's top financial watchdog conceded it had moved too quickly to approve leveraged exchange-traded funds linked to its two largest chipmakers.
The index ended down 9.99% at 8,203.84, its sharpest drop since March 4. Samsung Electronics and SK Hynix each fell more than 12% as offshore investors pulled back from semiconductor names that had powered South Korea's equity rally and propelled it to the top of global market rankings.
Bitcoin weakened in tandem with the broader retreat from risk, sliding by as much as $1,500 in a matter of hours and dipping below $63,000. The cryptocurrency traded around $62,300 after touching an intraday low near $62,000, according to CryptoSlate.
Chip-heavy index turns selling into a rout
The move followed softness in U.S. technology shares and rising expectations that interest rates may stay higher for longer. Selling pressure spread across Asia, dragging the MSCI Asia Pacific index down about 2.9% and pushing Japan's Nikkei 225 roughly 3% lower.
South Korea bore the brunt due to the KOSPI's heavy reliance on Samsung and SK Hynix. Together the two stocks represent more than half of the index's market value, tying the benchmark closely to sentiment around AI servers and high-bandwidth memory chips. That concentration had amplified gains into Monday, when the KOSPI hit a record above 9,100. Even after Tuesday's decline, the index was still up nearly 95% for the year.
When foreign investors began trimming exposure, the same structure magnified the downside. Losses in the two chipmakers dragged the broader market lower and prompted an automatic 20-minute suspension of trading.
Leverage in the domestic retail boom has also climbed. Margin borrowing reached about 60 trillion won ($39 billion) by the end of May, raising the risk of margin calls and forced selling when prices fall.
Watchdog rethinks leveraged chip ETFs
The selloff came after an unusual public admission from Financial Supervisory Service Governor Lee Chanjin. On June 22, Lee said the regulator had acted too quickly in allowing leveraged ETFs tracking Samsung and SK Hynix. Launched in late May, the products aim to deliver multiples of each stock's daily move, which can amplify losses when underlying shares decline.
Officials had viewed the funds as a way to lure South Korean retail investors back from U.S. markets into domestic equities, potentially easing pressure on the won. Lee acknowledged the products did little to support the currency and said he regretted not blocking their introduction.
Sixteen leveraged funds tied to Samsung and SK Hynix debuted with roughly $3 billion in assets. They later swelled to more than $9 billion, with retail investors holding about 92%. The rapid growth intensified concerns over the funds' daily rebalancing mechanics: to maintain target exposure, leveraged ETFs must buy or sell securities and derivatives as prices move, potentially reinforcing market swings—especially when they track companies that already dominate an index.
Goldman Sachs estimated ahead of the launch that a 5% move in Korean equities could generate about $4.7 billion in dealer rebalancing flows, roughly one-eighth of typical daily turnover. The Financial Supervisory Service is weighing stabilization measures; Lee did not say whether those could include leverage caps, tighter investor eligibility, or restrictions on new products.
Bitcoin slide sparks broader unwinds
Bitcoin's drop below $63,000 accelerated as traders cut risk and leveraged crypto positions began to unwind. CoinGlass data showed about $190 million in crypto positions were liquidated over the past hour, including roughly $184 million from longs. Liquidations totaled around $714 million over 24 hours, with about $215 million in forced closures in Bitcoin and roughly $177 million in ETH.
As prices fell through key thresholds, some leveraged positions no longer had enough collateral. Exchanges then automatically closed those trades, adding sell pressure and momentum to the decline.
The timing does not imply the KOSPI plunge directly caused Bitcoin's move. Both reflected a broader risk-off shift tied to weakness in technology stocks and concerns over tighter financial conditions. Bitcoin also entered the session facing softer institutional demand: U.S.-listed spot Bitcoin ETFs posted a rolling 30-day net outflow of about $6.35 billion, the largest for any comparable period since trading began, removing a key source of support and leaving the market more sensitive to abrupt sentiment swings.
