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Bank of Korea expressed its concern about the negative impact leveraged crypto trading might have on individual traders and the country’s financial system as a whole.
Bank of Korea Gov. Lee Ju-yeol is concerned that the volatility of crypto prices could damage the finances of South Korean individuals who are engaged in trading at leverage. “An excessive level of leveraged cryptocurrency trading puts households at risk of financial damages considering the instability of (cryptocurrency),” Lee said at a press conference held after a monetary policy committee meeting on Thursday, the Korea Herald reported.
Leverage or margin trading is where traders use borrowed funds from a broker to increase their trading position beyond their available balance. However, this technique could amplify both profits and losses and could be tricky to execute in highly volatile markets such as cryptocurrency.
Aside from the risks to retail traders, Lee is concerned that it might even affect the nation’s financial system. “We expect (the increasing amount of crypto trading) to have a negative impact on the financial system in any respect,” the central bank governor added.
Lee said that the Bank of Korea will closely monitor the transaction of financial institutions associated with leveraged trading. This could mean that the monetary authority might put a cap on loans to such entities to prevent defaults that could cause a spillover effect on the banking system.
South Korea has one of the highest crypto adoption rates in the world. In fact, an increasing number of young Koreans are quitting their jobs to focus on crypto trading.
Many South Korean employees in their 20’s and 30’s are actively involved in crypto trading. Experts say that these young workers were lured into the high-risk world of digital assets trading due to the rising housing prices, making it seemingly impossible for them to own their homes.
“I face the reality of being unable to afford my own home no matter how hard I save up my salary,” one employee in his 30’s said. “Despite severe volatility, there is no other way than cryptocurrency investments for me to accumulate wealth.”
The trend is especially pronounced in the tech sector, which forced some firms to offer perks to retain their young workers. “Most employees of IT companies in this area invest in cryptocurrency, and we're seeing workers quit after making more profits from their cybercash investments than their jobs,” a team leader working at a tech company revealed. “This is one of the reasons that IT companies have recently rushed to give big pay rises to their staff.
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