Bitcoin is trading at a higher price in South Korea than in other markets, a phenomenon known as the Kimchi premium. This could indicate strong buying pressure from Korean retail investors but also a sign of an overheated market that may soon correct.
The Kimchi premium is the difference between the price of Bitcoin on South Korean exchanges and the price on other global exchanges. For example, if Bitcoin is trading at $40,000 on Coinbase and at $41,000 on Bithumb, the Kimchi premium is 2.5%.
The Kimchi premium arises from various factors, such as the high demand for Bitcoin in South Korea, the limited supply of Bitcoin on local exchanges, the capital controls that restrict the movement of funds across borders, and the difficulty of arbitrage due to regulatory and logistical hurdles.
The Kimchi premium is often seen as a measure of the sentiment and enthusiasm of Korean retail investors, who are known for their active participation and influence in the crypto market. When the Kimchi premium is high, it means that Koreans are willing to pay more for Bitcoin than the rest of the world, indicating a bullish mood.
However, the Kimchi premium can also be a warning sign of a market top, as it may signal an unsustainable and irrational exuberance that could lead to a sharp reversal. Historically, the Kimchi premium has reached its peak before major market corrections, as shown by the data from on-chain analytics firm CryptoQuant.
According to CryptoQuant, the current 14-day moving average of the Kimchi premium is similar to what it was during the Bitcoin cycle peak in late 2021 when Bitcoin reached its all-time high of nearly $20,000. The firm stated:
“We are very curious to see if the Korean Premium Index will provide important clues to price tops this time too.”
The Kimchi premium also spiked during the May and November Bitcoin market crashes in 2022, suggesting it could be a reliable indicator of market tops.
Some traders have also observed the signal and expressed their caution. Last week, trader “TimelessBeing” commented:
“Kimchi premium has been synonymous with local tops over the past few years.”
At the time of writing, the Kimchi premium is at 3%, as Bitcoin is trading at around $44,680 on Bithumb, while the global average price is $43,430, according to CoinMarketCap. This is the highest level since February 2018, when the Kimchi premium reached 18%.
The Kimchi premium has been rising steadily since December 26, when CryptoQuant reported that high values of the index “could indicate Korean retail investors’ strong buying pressure.”
The rise of the Kimchi premium coincides with the rally of Bitcoin, which has surged by more than 40% in the past month, breaking new records and surpassing $40,000 for the first time.
The question is whether the Kimchi premium will continue to increase or whether it will reach a tipping point and trigger a market correction. The answer may depend on the balance between the supply and demand of Bitcoin in Korea, as well as the global market trends and sentiment.
