Having switched back to a discount, South Korea’s “Kimchi premium” makes it less expensive to purchase cryptocurrencies like Bitcoin on local exchanges in the country.
The kimchi dish from Korea inspired the name of the phenomenon. When Bitcoin trades at a greater price on South Korean exchanges than it does on other markets, this is known as the “Kimchi premium.”
CryptoQuant, a supplier of blockchain analytics, reports that between February 17 and February 19, the Korea Premium index fluctuated within a range of -0.24 and 0.01 points.
BTC was trading at $24,464 on Coinbase and $24,487 on Binance at the time of writing, according to CoinMarketCap.
In contrast, the South Korean market Bithumb advertised it for $24,386, while Upbit, one of the country’s biggest exchanges, was trading Bitcoin for $24,405.
Ether, the second-largest cryptocurrency by market valuation, is in a similar scenario.
Although ETH was changing hands for $1,682 on Bithumb and $1,683 on Upbit at the time of writing, statistics from CoinMarketCap revealed that ETH was trading for $1,687 on Coinbase and $1,691 on Binance.
Doo Wan Nam, chief operating officer of node validator and venture capital firm Stablenode, claims that the decline in interest from Korean retail investors is caused by the Kimchi premium becoming a discount.
According to him, this often signals a decline in Korean retail interest in cryptocurrencies, which is paradoxically a great time to invest since you can always sell your holdings to Korean gamblers for a 20% premium later on when they FOMO.
Arbitrage is a strategy used by some traders to make money by trading the price variations between several exchanges.
About Kimchi Premium
The amount of the Kimchi premium has historically been correlated with news, with large drops being seen whenever negative news regarding South Korean cryptocurrency exchanges is reported.
As the South Korean government said it would clamp down on bitcoin trade at the start of 2018, the premium vanished. According to research published in 2019 by the University of Calgary, the Kimchi Premium first appeared in 2016.
From January 2016 and February 2018, South Korean Bitcoin exchanges reportedly charged an average of 4.73% more than their US equivalents.