Bitcoin’s notorious “Kimchi premium” has resurfaced, with the cryptocurrency commanding an average 10% price premium in South Korea compared to global exchanges. This phenomenon, which refers to the price difference of Bitcoin on local Korean exchanges versus global platforms, presents an intriguing opportunity for traders.
In the Asian morning hours, Bitcoin (BTC) was trading just above $66,000 on most global exchanges, while on Korean exchanges like Upbit, it soared over 93 million won, equivalent to over $71,000 at current exchange rates. This discrepancy in prices has historically allowed savvy traders to exploit an arbitrage opportunity by purchasing Bitcoin on a global exchange, transferring it to a Korean exchange, and selling it for a risk-free 10% profit in Korean won. However, challenges such as capital controls and difficulties in withdrawing large sums of money from Korea have limited the accessibility of this opportunity to most investors.
One prominent individual who successfully capitalized on the Kimchi premium is Sam Bankman-Fried, the founder of Alameda Research and FTX exchange. Bankman-Fried revealed that the premium peaked at 50% during 2019 and 2020, enabling his firm to generate substantial profits. The resurgence of the Kimchi premium indicates a renewed interest and participation from retail investors in South Korea, driven by local demand for the asset.
Ki Young Ju, the founder of on-chain analysis firm CryptoQuant, described the Kimchi premium as a “pure retail FOMO indicator,” suggesting that Korean retail investors are re-entering the market. The increased premium has led to an arbitrage opportunity, prompting traders to repatriate their overseas holdings back to Korea, resulting in a surge in Bitcoin reserves on local exchanges like Upbit.
While the Kimchi premium offers potential gains for traders, it also underscores the unique dynamics of the South Korean cryptocurrency market. The country’s stringent capital controls, coupled with limited infrastructure for smaller investors, pose challenges for capitalizing on the arbitrage trade. Nevertheless, as the premium continues to climb, more traders are likely to seize the opportunity, further boosting Bitcoin reserves on Korean exchanges.
In a recent development, South Korea’s financial watchdog chief hinted at the potential approval of spot Bitcoin exchange-traded funds (ETFs) in the country. Lee Bok-hyun, governor of the Financial Supervisory Service, disclosed in a radio interview that authorities are deliberating on the matter, with varying opinions among officials. While some, like Lee, hold a positive view on virtual assets, others remain cautious. The discussions aim to consider all perspectives and engage in internal dialogues.
As of now, spot Bitcoin ETFs are not accessible to South Korean crypto investors. In January, the country’s financial authorities announced that they had no intentions to regulate the sales of Bitcoin futures ETFs. The evolving landscape of cryptocurrency regulations in South Korea underscores the growing interest and potential opportunities in the market.
Ian is a cryptocurrency enthusiast blending humor with professionalism. With an engineering background and a storyteller's heart, he simplifies the blockchain world with sharp analysis and a touch of wit. At Cryptowire, he brings his unique perspective to make digital financial innovation accessible to all.
