the first one of course... i mean, not only changing the "target" into loli, the "target" also lost their memories. So using that katana for "seppuku", that mean change ourself into loli and lost our memories, is not worth it..
I do agreed with you, and i think maybe their guilt is also make both of them thinking that in the end they will go to "hell", of course by also bringing every single "enemies" that made them make that decision go with them to the "hell" too...