Luna debacle casts ripple effect over Korean stocks

The price chart for Luna is on display at a Bithumb customer service center in Seoul, Wednesday. Yonhap

Watchdogs launch investigation of crypto exchanges

By Lee Min-hyung

Luna's collapse is stoking fears of aggravating the already-downbeat stock market sentiment here, as shares of major tech and game firms have experienced severe crashes in lock-step with the abrupt demise of the controversial cryptocurrency.

The sister token of controversial stablecoin UST plummeted over the past week, rattling the entire cryptocurrency market as few investors had expected the sudden demise of the once red-hot Terra ecosystem, which stood behind the success of the two coins.

Their breakdown is also making ripples in the Korean stock market, which had already turned lukewarm this year on multiple external and internal risk factors, such as global monetary tightening, China's lockdowns and growing inflationary pressure here and abroad.

Investors' worries about local stocks now show signs of picking up further in the wake of the recent crypto collapse, data showed. According to the Korea Exchange, investors traded a daily average of around 940 million shares on the benchmark KOSPI between May 2 and 13, down by 16.4 percent from the previous year.

The period overlaps with the collapses of Terra and Luna. Terra started losing its $1 peg on May 9, and its sister token also crashed to near zero over the past week.

Some large-cap tech and game stocks that are linked with cryptocurrencies also extended losses during the same period, on the shocking evaporation of the two coins which had been considered mainstream up until recently.

Shares of Netmarble, one of Korea's most influential game developers, plunged by 18.39 percent in two days between May 12 and 13, when global fears over the Terra fiasco climbed higher. Netmarble shares reported record-low closing prices for two days straight.

Kakao, the operator of Korea's most widely used mobile messenger app, also went on a losing streak between May 9 and 16, with a drop of 2.14 percent in its stock price. The company is the third-largest shareholder of Dunamu, which runs Upbit, the nation's largest cryptocurrency exchange.

Hybe, the nation's most highly valued music company, was also hit with its stock falling more than 8 percent during the same period. The company has a 2.5 percent stake in Dunamu.

Hwang Sei-woon, a senior research fellow at Korea Capital Market Institute, said that the Luna incident would not bring about any dramatic shocks to the economy, even if investor fears may rise temporarily.

"Luna's collapse comes as a big shock, particularly to retail investors, as some Korean companies had invested in the cryptocurrency directly," he said. "Two core factors that could cause an economic crisis are a chain of company bankruptcies and mass layoffs. But the Luna scandal has little to do with such factors."

With the Luna debacle sparking concerns across other asset markets by heightening investor fears, financial authorities have launched an emergency investigation of crypto exchange operators.

The Financial Services Commission (FSC) and the Financial Supervisory Service have requested that Korea's major crypto exchanges ― such as Upbit and Bithumb ― submit data on how many investors hold Luna and Terra here, and what measures they have taken to minimize investors' losses.

"We are paying attention to price and transaction movements (of the cryptocurrencies)," FSC Chairman Koh Seung-beom said during a National Assembly meeting.

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