South Korea's Kospi Composite Index Surges 30% as Crypto Assets Gain Traction

South Korean equities have surged following President Lee Jae-myung’s pledge to permit cryptocurrency assets backed by the won. This has driven intense interest among retail investors in companies associated with digital currency projects. The benchmark Kospi Composite index has gained nearly 30% this year, making South Korea Asia’s best-performing market in the first half.

Stocks associated with the Bank of Korea’s digital currency initiatives have experienced significant price fluctuations. While LG CNS shares rose by about 70% in June before pulling back due to profit-taking, Kakao Pay shares more than doubled. Kosdaq-listed companies have seen major moves based on stablecoin connections. Fintech security firm Aton jumped 80% while mobile game producer ME2ON tripled after its subsidiary launched a dollar-pegged stablecoin for casino applications.

The retail enthusiasm has driven outstanding margin loans to Won20.5 trillion ($15 billion). Investors are increasing leverage to chase gains despite the government not yet announcing detailed cryptocurrency policies. Expectations intensified following Lee’s appointment of Kim Yong-beom, a digital token advocate, as chief policy adviser. A parliamentary bill proposed this month would allow companies with Won500 million in equity capital to issue won-based stablecoins.

South Korea hosts one of the world’s most active crypto markets, with approximately 20% of the population trading digital assets. USD-pegged stablecoins reached ₩57 trillion in trading volume during the first quarter, prompting the Bank of Korea to accelerate its preparations for digital currency. Banks, brokerages, and fintech companies are showing strong interest in stablecoin issuance, though the government has not determined licensing requirements or timelines.

Bank of Korea Governor Rhee Chang-yong has voiced concerns about non-bank entities issuing won-pegged stablecoins. He also cited potential impacts on capital flows and the effectiveness of monetary policy. The government will need to ensure that the regulatory framework is robust enough to prevent fraud and protect investors. Additionally, there may be concerns about the potential impact on traditional financial institutions, which could face increased competition from digital asset platforms.

Despite these challenges, the overall sentiment remains positive, with many analysts predicting that the backing of won-based tokens will drive long-term growth in the South Korean economy. The decision to support won-based tokens is part of a broader initiative to modernize South Korea's financial infrastructure. By endorsing these tokens, the government aims to foster innovation and attract investment in the burgeoning crypto industry. This support is expected to boost the development of blockchain technology and related services, positioning South Korea as a leader in the global crypto market.