Debt Restructuring "Liquidity Reduction Shock"... Stock and Cryptocurrency Markets Impacted (Comprehensive)

[Asia Economy Reporters Seon-ae Lee and Byung-sun Gong] As financial authorities focus on policies to curb excessive loan demand, known as debt restructuring, to stabilize the housing market, negative repercussions are spreading to the stock and cryptocurrency markets. Debt restructuring involves raising interest rates and reducing loan limits to absorb the excessive liquidity circulating in the market, so some level of shock is inevitable. Consequently, while the key variable in the real estate market has emerged as whether there will be a policy shift due to political intervention rather than economic or supply-demand factors, the stock and cryptocurrency markets are also closely monitoring the government's debt restructuring policies.

According to the Korea Financial Investment Association on the 14th, the deposit amount, which exceeded 70 trillion won in early October, fell to around 64.6 trillion won as of the 10th of this month. In November, the individual trading volume in the domestic stock market (KOSPI + KOSDAQ) was 17.3 trillion won, a 16% decrease compared to the average this year. Youngsoo Seo, a researcher at Kiwoom Securities, interpreted this as "the overall household debt restructuring is having a certain level of impact on the stock market."

The cryptocurrency market is inevitably affected as well. When central banks worldwide unleashed unprecedented amounts of money under the pretext of the COVID-19 crisis, a backlash led to a surge not only in the stock market but also in cryptocurrencies such as Bitcoin. In other words, as the value of money declined, demand for alternative investment assets increased. This means that debt restructuring, i.e., liquidity reduction policies, could act as a factor causing a decline in the value of these alternative assets.

The shock from liquidity reduction is already being reflected. According to CoinGecko, a cryptocurrency market data site, as of the 13th, the daily trading volume of the four major domestic cryptocurrency exchanges (Upbit, Bithumb, Coinone, and Korbit) was approximately 4.3964 trillion won. Upbit's trading volume was 3.125 trillion won, the lowest level since July 21.

The soaring trading volumes of the four major domestic exchanges have sharply declined within a month. On the 16th of last month, Upbit's daily trading volume alone reached about 18.7542 trillion won, far surpassing the KOSPI's 11.1012 trillion won on the same day. Additionally, Bithumb, Coinone, and Korbit recorded trading volumes of 3.8708 trillion won, 571 billion won, and 27.3 billion won, respectively, bringing the total trading volume of the four major exchanges to 23.2233 trillion won. This means the trading volume has dropped to about one-fifth in just one month.

Due to liquidity issues, there is no visible momentum for a rebound in the cryptocurrency market. Since the crash on the 4th, Bitcoin has not surpassed the 70 million won mark even once. At the end of last month, Upbit launched a marketplace dedicated to non-fungible tokens (NFTs), and Korbit received a 90 billion won investment from SK Square, but no signs of a rebound have appeared.

What is more noteworthy is the high volatility of cryptocurrency prices, which means the risk of loss is relatively high during sharp price fluctuations. Since many people in their 20s and 30s invest using credit loans, this could potentially lead not only to investment losses but also to the initial signs of household loan defaults. In fact, based on Upbit, where over 80% of coin trading volume occurs, the proportion of investors in their 20s and 30s this year reached 60%. Furthermore, the 20s and 30s age group has been the biggest beneficiary of the government's loan expansion policies, with loans exceeding 100 million won increasing by more than 50% on a net basis. Starting January next year, the Debt Service Ratio (DSR) regulation will apply to loans over 200 million won, and from July, it will be lowered to loans over 100 million won.

Researcher Seo emphasized, "Considering that credit loans are the most affected by DSR, the tightening of regulations is expected to have a certain level of impact on the cryptocurrency market and, further, on the stock market," adding, "This is why stock and cryptocurrency investors should closely watch the government's debt restructuring policies going forward."

This content was produced with the assistance of AI translation services.