A week of turbulence in artificial intelligence chip stocks has laid bare the scale of leveraged and speculative positioning built up around the AI trade, with Bloomberg reporting that the ecosystem of leveraged ETFs and structured products now oversees more than $270 billion in assets. The unwinding of those positions reverberated from Seoul to New York, hammering retail investors and rattling crypto markets tied to Michael Saylor's Strategy funding model.
The selloff began in earnest on Monday, June 22, when South Korea's Kospi plunged as much as 10% from its recent peak, triggering circuit breakers. At the center of the volatility were leveraged ETFs tracking Samsung Electronics and SK Hynix, launched in late May and fueled almost entirely by retail investors. Those funds ballooned from roughly $3 billion at inception to assets now approaching $50 billion, according to JPMorgan.
The structural problem is what traders call "short gamma": leveraged ETFs must buy more as prices rise and sell more as prices fall, mechanically amplifying swings in both directions. JPMorgan's Korea equity strategy team flagged gamma exposure gaps that could force additional selling exceeding $1 billion during sharp moves. South Korea's Financial Supervisory Service Governor Lee Chan-jin publicly expressed regret over approving the products. "In retrospect, I wonder if I should have taken extreme measures to protest against the launch," he said.
In the United States, the Nasdaq Composite fell more than 3% on Tuesday, with Nvidia, Micron Technology, and Arm among the hardest hit. Markets partially recovered later in the week after Micron reported blowout earnings on Wednesday evening.
Saylor's Bitcoin Funding Chain Strains
Separately, Bloomberg reported that the unraveling of Strategy's preferred stock instrument, STRC, jolted crypto markets. STRC — a variable-rate perpetual preferred stock paying an 11.5% annualized dividend — had grown to $8.5 billion in under nine months and was pitched by Saylor as the fastest-growing credit product in the world. But by mid-June the stock had fallen below $83 intraday, well under its $100 par value, as Bitcoin slid toward $60,000.
The strain on STRC matters because it has become a primary funding mechanism for Strategy's Bitcoin purchases, financing roughly 77,000 BTC in acquisitions this year alone. With the instrument trading at a persistent discount, Strategy's ability to raise fresh capital through the product is now in question.
A Market Built on Momentum
The convergence of these forces — Korean retail mania, leveraged ETF mechanics, and crypto funding stress — underscores how deeply speculative structures have embedded themselves in the AI and tech trade. Goldman Sachs noted earlier this month that leveraged ETF assets tied to AI in the U.S. alone had doubled from $39 billion to $84 billion between April and May. The question now is whether the brief recovery following Micron's earnings marks a durable bottom, or merely a pause before the next forced-selling cascade.