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S Korean Investors Looking for Crypto Cure to the Bitcoin Blues

Tim Alper
Last updated: | 5 min read

After last year’s crypto fever, when Koreans were paying premiums of up to 40%, price drops and crypto-skeptic government policy has left young Koreans in a quandary. But is there light at the end of the tunnel?

“I suppose I didn’t think about it much,” 31-year-old Kim Keun-ho, a middle manager at one of South Korea’s biggest IT companies, told ”It was payday and my colleagues and I were talking about putting our entire monthly salaries into bitcoin. I just went ahead and did it without telling my wife or children. I sold everything just before the bubble burst and spent the profits on a new, top-of-the-line washing machine. But some of the other guys weren’t so lucky. Now they are wondering how to pay their bills – or how to tell their wives about what happened.”

Kim’s story is far from unique in South Korea. Like millions of others, he finds himself in the troubled 20-39 age group, dubbed “the 2030s” by the Korean media – and at the heart of a gigantic economic paradox. South Korea’s rise through the global GDP rankings has been nothing short of meteoric.

Fifty years ago it was one of the poorest nations on earth. It currently stands 11th in the world in terms of GDP, and its export economy is the sixth largest. Yet the 2030 generation appears to be missing out on all this financial success. Koreans are “up to their necks” in household debt. Youth unemployment is over 10%, real estate prices have been “surging” for over a decade and the stock market is in “pain,” with more gloom predicted.

The “Kimchi Premium”

In 2017, 2030 Koreans discovered what they believed to be a lifeline – cryptocurrencies. And when China’s September crackdown removed a major local player from the market, South Korea’s youth found themselves in the world’s third biggest cryptocurrency market.

They started buying big, buying at inflated prices simply because vendors knew they were Korean and would pay over the odds for crypto – any crypto. The phenomenon became known as the “kimchi premium,” or the “kimp” for short. At the height of the kimp, demand was so high, Korean investors were paying up to 40% more than investors elsewhere in the world.

In December the New York Times carried stories of 16-year-olds sinking their pocket money into bitcoin investments. Prices skyrocketed to record highs. In cases like Kim’s, many ambitious sorts were presented with huge windfalls. Untaxed earnings were rolling in for 2030 Koreans, and the champagne was flowing.

Then, late last year, the roof fell in. The government, concerned at the unregulated nature of the crypto market, stepped in, talking of regulations that sounded ominously like a China-style crackdown. Investors panicked. The South Korean market went into a tailspin. Massive sell-offs dragged prices down, and for some of those who had invested almost everything, the toll was just too much.

On January 31, a father in the city of Busan walked in to his 20-year-old son’s room to find him dead next in his bed to a giant canister of helium gas. Police concluded he had taken his own life, overdosing on the gas.

Police checked the dead man’s phone records and discovered that he had saved years’ worth of pocket money and pay from part-time jobs – and invested the lot in cryptocurrencies. At one point the man, referred to by police as “Mr A,” was up over tenfold on his original stake – only for prices to crash down, leaving him utterly distraught. His mother confirmed, “My son had invested in cryptocurrency, but had recently become deeply depressed because of the price plunge.” A police officer said, “It appears Mr A made a very extreme choice.”

Time for a Safety Net?

Mr A’s case has only served to plant yet more seeds of division in South Korea – with blame now landing on all sides in fierce debates now raging on the internet. Some web users have accused the government of “criminal negligence” of the 2030 generation, others have pointed the finger at the president for failing to begin regulating cryptocurrency investment sooner, while others still have blamed “rash” youths like Mr A for squandering away their earnings on ill-advised “gambles.”

Hwang Hong-seop, professor of social education at Busan National University, warned, “If we don’t provide some sort of safety net for people like this, pretty soon you’ll be reading about the second and third Mr A.”

“Often, people who lose a lot of money in a short space of time find it very difficult to tell their families. What they need more than anything at times like these is counseling,” said Yun Jin, head of South Korea’s Center for Suicide Prevention.

Professor Yoo Hee-jung of Seoul National University says that when young Korean investors realize they are powerless to prevent factors like fluctuating prices and government policy changes coming in, a sense of desperation can take over. Yoo said, “You feel like all your efforts have been in vain and depression creeps in.”

Light at the End of the Tunnel

However, despite the gloom, many 2030 Korean investors are refusing to give up, and are instead looking for reason for cheer.

News of Samsung’s move to start producing crypto mining hardware was met with widespread jubilation on social media sites frequented by 2030s, as were reports of South Korean messaging app Line’s decision to launch its own cryptocurency exchange platform.

What is more, it appears that the government may yet take mercy on its 2030 citizens. In what appears to be a significant U-turn, the government said it would stop short of issuing a full ban on cryptocurrency exchanges – something that seemed a very real possibility only a few days ago.

Although Samsung and Line’s moves may be intended primarily for international markets, the developments seem to have sent out a message to the 2030s – Korea’s big businesses have not yet given up on crypto. And the government’s backtracking has offered yet another glimmer of hope. Perhaps, some are saying, all is not yet lost.

For some, after the most torrid month in Korean crypto history, February has already afforded investors with cause for hope – albeit guarded. The slump has at least killed off the kimchi premium, paving the way for some more level-headed investment, and some optimistic 2030s are preferring to see the glass half full.

Kwak Kum-joo, professor of psychology at Seoul National University, said, “Investment failure can be painful, but it’s not something young Korean should risk damaging their health over. People just need to put it down to the experiences of youth – and move on.”