Bear Markets Meet Crypto Adoption: South Korea and Japan Navigate Uncharted Territory

The markets in South Korea and Japan are experiencing a significant downturn, with the Kospi entering a technical bear market and Tokyo's Nikkei sliding again. The reversal follows an extraordinary run, with the index jumping 116% this year. Leverage fueled much of that climb, and now it fuels the descent, with outstanding leveraged bets hitting a record 29.2 trillion won.

The comparison to China in 2015 is often drawn, when margin debt and retail frenzy preceded a meltdown that erased trillions. Analysts see uncomfortable echoes, with Jin Qianjing from Shenwan Hongyuan Group warning that Korean stocks could amplify sentiment across global technology markets given their high leverage.

Japan's parliament passed amendments to the Financial Instruments and Exchange Act on July 15, classifying crypto as financial products rather than payment tools. This aligns them with stocks and bonds and introduces insider trading bans, issuer disclosures, and penalties of up to 10 years in prison.