South Korea’s Bitcoin price premium, also known as the “Kimchi premium,” has re-emerged. Bitcoin is currently trading around $10,000 higher on South Korean exchanges compared to global exchanges, representing a premium of about 10%.
This price difference, where Bitcoin is more expensive in South Korea, is called the Kimchi premium. In theory, traders could exploit this by buying Bitcoin on a global exchange and selling it on a Korean exchange for a profit. However, capital controls and difficulties withdrawing large amounts of money from Korea make it challenging for most investors to take advantage of this opportunity.
Sam Bankman-Fried Benefited from Kimchi Premium
Sam Bankman-Fried, the entrepreneur behind Alameda Research and FTX exchange, successfully leveraged the Kimchi premium to his advantage.
He reported that this premium soared to as much as 50% in 2019 and 2020, allowing his company to secure substantial gains.
The resurgence of the Kimchi premium signals a revival of interest and involvement by retail investors in South Korea, propelled by the domestic appeal of the asset.
Ki Young Ju, who founded the on-chain analytics company CryptoQuant, described the Kimchi premium as a definitive sign of retail FOMO, indicating that Korean retail investors are re-entering the market.
Meanwhile in the US:
— Ki Young Ju (@ki_young_ju) August 8, 2021
Coinbase premium hits a 3-month high. pic.twitter.com/5ISarMNygv
The rising premium generates an arbitrage chance, encouraging traders to repatriate their foreign holdings to Korea, which results in an increase in Bitcoin holdings on local trading platforms such as Upbit.
This premium offers possible profits for traders, but it also underscores the distinct characteristics of the South Korean cryptocurrency market.
South Korea’s stringent capital regulations, along with the scarce resources available to smaller investors, pose obstacles to taking advantage of the arbitrage opportunity.
However, as the premium escalates, an increasing number of traders are expected to seize this opportunity, thereby boosting Bitcoin holdings on Korean trading platforms further.
South Korea May Permit Spot ETFs
This week, the head of South Korea’s financial regulatory body disclosed that discussions are underway about potentially greenlighting spot Bitcoin exchange-traded funds (ETFs) within the nation.
Lee Bok-hyun, the chief of the Financial Supervisory Service, mentioned during a recent radio conversation that opinions on the matter vary among the authorities.
Some authorities, including Lee, are optimistic about digital assets, while others approach with more caution. Lee highlighted the importance of considering diverse viewpoints and conducting thorough internal deliberations.
“Within the regulatory body, I stand among those who view digital assets favorably, but there are also those who express reservations. It’s important to consider their viewpoints as well. We’re currently having internal discussions on this matter.”
Currently, South Korean crypto investors do not have access to spot Bitcoin ETFs.
In January, the country’s financial regulators stated they had no immediate plans to oversee the sale of Bitcoin futures ETFs.