The South Korean Bitcoin market is witnessing a significant resurgence of the "Kimchi Premium," with the severity of the price discrepancy climbing steadily. Compared to the market price of approximately $59,000 on global exchanges like Coinbase, the price in South Korea has surged past $69,000, representing a premium of around 15%. This phenomenon, a replay of past market cycles, is being driven by a new bull market combined with South Korea's strict capital controls.
What is the Kimchi Premium?
The term "Kimchi Premium" refers to the gap between the price of cryptocurrencies on South Korean exchanges and those on other global exchanges. This market anomaly first gained widespread attention in the crypto community during the 2017-2018 period when the Bitcoin premium soared as high as 50%. Recently, this phenomenon has shown signs of making a strong comeback.
The premium had already risen to 9.48% by the end of March this year, increased to 11.97% on the 5th of this month, and has now sharply broken through to 15%. Data from Bithumb, the country's largest exchange, shows that one Bitcoin was priced at 78,095,000 Korean Won (KRW), which is approximately $69,504.
Current Market Data and Comparisons
When compared to the BTC/USD trading pairs on major global cryptocurrency exchanges like Binance and Coinbase, the price溢价 (premium) exceeds 15%. At the time of writing, the price on Coinbase was reported at $58,798.
This substantial difference highlights a unique supply and demand dynamic within the South Korean market, largely isolated from global price discovery mechanisms.
Root Causes of the Premium
The Kimchi Premium has its origins in specific local conditions. The South Korean government enforces strict controls on capital entering and leaving the country. These restrictions cause delays and a reduction in the supply of cryptocurrencies to South Korean exchanges, leading to a supply that cannot meet local demand.
More importantly, the current new bull run is pushing FOMO (Fear Of Missing Out) sentiment to new highs. A survey report from local employment data site Samarin revealed that as far back as 2017, over three out of every ten workers held Bitcoin. Decrypt pointed out that in January of this year, new registrations on Bithumb surged by 760%.
Analyst Perspectives and Historical Context
As the Kimchi Premium continues its upward climb, Vetle Lunde, an analyst at crypto market research firm Arcane Research, expressed concern on Twitter. However, he noted that the current 15% premium in South Korea is still far lower than the astonishing figures of 63% in May 2017 and 47% in January 2018.
Ki Young Ju, the CEO of blockchain data company CryptoQuant, does not believe history will repeat itself exactly. He notes that South Korea's Bitcoin trading volume currently accounts for only 1.7% of the global total. This number was 7.9% in January 2018, indicating a relatively smaller impact on the global market now.
The Challenges of Arbitrage
Price differences typically represent arbitrage opportunities. In a free market, arbitrage by investors would usually cause the premium phenomenon to gradually disappear. The method would involve buying Bitcoin on Coinbase, selling it on Bithumb for a profit, converting the Korean Won to US dollars, and then repeating the process until the price in South Korea converges with the global market price.
However, analyst Vetle Lunde explained to Decrypt that South Korea's stringent capital controls, which intervene in the process of converting Won into US dollars, make this arbitrage extremely difficult. The regulatory hurdles effectively prevent the market from naturally correcting the price imbalance.
Some analysts suggest that issuing a decentralized stablecoin pegged to the Korean Won could be a potential solution. This would move the currency exchange scenario to a decentralized exchange (DEX). Through the exchange of USDT for a decentralized KRW stablecoin, arbitrage could become feasible, connecting South Korea's crypto demand with the global market and improving capital efficiency.
However, this solution also comes with significant considerations regarding DeFi security risks.
Frequently Asked Questions
What exactly is the Kimchi Premium?
The Kimchi Premium is the term used to describe the higher price of cryptocurrencies, particularly Bitcoin, on South Korean exchanges compared to their prices on other global exchanges. It's caused by a combination of high local demand and strict capital controls that limit supply.
Why can't traders arbitrage the price difference away?
While the price difference creates an apparent arbitrage opportunity, South Korea's strict capital controls make it very difficult to move large amounts of Korean Won out of the country to convert into other currencies like the US dollar. This regulatory barrier prevents traders from easily capitalizing on the gap.
How high has the Kimchi Premium been historically?
The premium reached its most extreme levels during the 2017-2018 bull run, peaking at around 50% and even reaching temporary highs of 63% in May 2017. The current level of 15%, while significant, is still below these historical extremes.
Does the Kimchi Premium affect all cryptocurrencies?
While Bitcoin is the most prominent example, the premium often applies to other major cryptocurrencies traded on South Korean exchanges due to the same underlying supply and demand dynamics.
What does a high Kimchi Premium indicate?
A rising Kimchi Premium typically indicates exceptionally strong retail buying pressure and FOMO within the South Korean market that is not being met by available supply, often during a bull market phase.
Are there any risks associated with buying Bitcoin in South Korea during a high premium period?
Yes, the primary risk is that the premium could collapse if local demand cools or if supply mechanisms improve, potentially leading to sudden underperformance of assets bought at the inflated local price compared to the global market rate. It's crucial to evaluate market conditions carefully before making investment decisions based on these disparities.