The leveraged funds driving the semiconductor rally are now backfiring, as the U.S., South Korea, and Taiwan semiconductor markets simultaneously enter a deleveraging cycle. In June, leveraged ETFs were still fueling the AI and semiconductor rally, but by July, they’ve started rapidly deleveraging. The asset size of U.S. tech leveraged ETFs has dropped by about $50 billion from the June peak, leaving only around $50 billion now—hitting the lowest level since April. Similarly, the size of leveraged ETFs in South Korea and Taiwan has fallen by more than half from their peaks, leaving only about $27 billion. Combined, the two markets now hold roughly $77 billion. In just over a month, nearly half of the leveraged ETF assets have disappeared. The shrinkage in leveraged ETF size comes partly from net value losses caused by underlying stock declines, partly from investors actively redeeming shares, and partly from funds rebalancing daily to maintain 2x or 3x leverage. When investors redeem shares, funds are forced to sell stocks. When underlying stocks fall, funds also need to reduce positions to maintain target leverage. During an uptrend, this mechanism creates mechanical buying pressure. As stock prices rise, ETF net values increase, and to maintain fixed leverage, funds must continue buying underlying stocks. The higher the stock prices go, the more funds buy, and the larger the ETF size grows. When the market reverses, the entire process flips. Stock declines shrink ETF net values, funds start reducing positions, and as investors see losses widen, they redeem shares, forcing funds to sell even more underlying stocks. The 3x long U.S. semiconductor ETF, SOXL, has already dropped about 67% from its June peak. After falling 67%, it would need to rise over 200% just to return to its original level. U.S. tech products are betting on Nvidia, AMD, Broadcom, and Micron. South Korean funds are focused on SK Hynix and Samsung Electronics, while Taiwan is concentrated on TSMC and the semiconductor supply chain. Ultimately, the bets are all on AI computing power, advanced processes, and memory chips. Earlier, global funds were simultaneously buying into the same narrative, and leveraged ETFs amplified this trade. Now, as U.S. tech stocks and South Korean semiconductors are both declining, leverage across the three markets is shrinking together. Of course, the fact that leveraged ETF sizes have nearly been cut in half suggests that leveraged positions are being cleared out. But how much longer this cleanup will take before the market returns to normal—no one can say for sure. @Gate Crypto, U.S. stocks, Hong Kong stocks, Korean stocks, gold, CFDs, prediction markets—all in one platform.