Bitcoin Kimchi Premium in South Korea Surges to Over 10%

Bitcoin Kimchi Premium in South Korea Surges to Over 10%

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Bitcoin’s “Kimchi premium” has returned, with the cryptocurrency commanding a 10% price premium in South Korea compared to global exchanges. While Bitcoin was trading just above $66,000 on most global exchanges, it reached over 93 million won (equivalent to over $71,000) on Korean exchanges like Upbit. The Kimchi premium phenomenon refers to the price difference of Bitcoin on local Korean exchanges compared to global platforms. Traders can theoretically exploit this arbitrage opportunity by purchasing Bitcoin on a global exchange, transferring it to a Korean exchange, and selling it for a risk-free 10% profit. However, capital controls and challenges in withdrawing large sums of money from Korea make it difficult for most investors to take advantage of this opportunity.

##Sam Bankman-Fried benefited from Kimchi Premium

One notable figure who capitalized on the Kimchi premium was Sam Bankman-Fried, the founder of Alameda Research and FTX exchange. Bankman-Fried claimed that the premium reached as high as 50% during 2019 and 2020, enabling his firm to make significant profits. The return of the Kimchi premium indicates 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, referred to the Kimchi premium as a “pure retail FOMO indicator,” suggesting that Korean retail investors are getting back into the market. The increased premium creates an arbitrage opportunity, prompting traders to bring their overseas holdings back to Korea and leading to a rise in Bitcoin reserves on local exchanges like Upbit. While the Kimchi premium provides potential gains for traders, it also highlights the unique dynamics of the South Korean cryptocurrency market. The country's strict capital controls, combined with limited infrastructure for smaller investors, present challenges for capitalizing on the arbitrage trade. Nevertheless, as the premium continues to rise, more traders are likely to exploit the opportunity, further increasing Bitcoin reserves on Korean exchanges.

##South Korea could allow spot ETFs

Earlier this week, South Korea's chief of the financial watchdog revealed that authorities are discussing the potential approval of spot Bitcoin exchange-traded funds (ETFs) in the country. Lee Bok-hyun, governor of the Financial Supervisory Service, said in a recent radio interview that there are differing opinions among authorities. While some, like himself, hold a positive stance on virtual assets, others are more cautious. Lee emphasizes the need to consider all perspectives and engage in internal discussions. Currently, spot Bitcoin ETFs are not available for South Korean crypto investors. In January, the country’s financial authorities announced that they had no plans to regulate the sales of Bitcoin futures ETFs.

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Bitcoin’s “Kimchi premium” is making a comeback in South Korea, with the cryptocurrency commanding a 10% price premium on local exchanges compared to global platforms. This phenomenon refers to the price difference of Bitcoin between Korean exchanges and global exchanges. Traders can potentially exploit this arbitrage opportunity by purchasing Bitcoin on a global exchange, transferring it to a Korean exchange, and selling it for a risk-free 10% profit.

However, due to capital controls and difficulties in withdrawing large sums of money from Korea, this arbitrage trade is challenging for most investors. Despite the challenges, the return of the Kimchi premium indicates renewed interest and participation from retail investors in South Korea, driven by local demand for Bitcoin.

Sam Bankman-Fried, the founder of Alameda Research and FTX exchange, is one notable figure who has capitalized on the Kimchi premium in the past. His company reportedly made significant profits when the premium reached as high as 50% during 2019 and 2020.

Ki Young Ju, the founder of on-chain analysis firm CryptoQuant, referred to the Kimchi premium as a “pure retail FOMO indicator.” This suggests that Korean retail investors are getting back into the market, contributing to the increased premium. This creates an arbitrage opportunity, prompting traders to bring their overseas Bitcoin holdings back to Korea, leading to a rise in Bitcoin reserves on local exchanges.

The unique dynamics of the South Korean cryptocurrency market, including strict capital controls and limited infrastructure for smaller investors, present challenges for capitalizing on the Kimchi premium. However, as the premium continues to rise, more traders are likely to exploit the opportunity, further increasing Bitcoin reserves on Korean exchanges.

In other news, South Korea is currently discussing the potential approval of spot Bitcoin exchange-traded funds (ETFs). There are differing opinions among authorities, with some holding a positive stance on virtual assets and others being more cautious. The approval of spot Bitcoin ETFs would provide additional investment opportunities for South Korean crypto investors.

As of now, spot Bitcoin ETFs are not available in South Korea, but the authorities are engaging in internal discussions to consider all perspectives. In January, the country’s financial authorities announced that they had no plans to regulate the sales of Bitcoin futures ETFs.

This renewed interest in the Kimchi premium and the potential approval of spot Bitcoin ETFs highlight the evolving nature of the South Korean cryptocurrency market and its impact on global trends.

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