Bitcoin (BTC) is trading slightly lower in South Korea compared to global cryptocurrency markets due to an unseen reverse ‘kimchi premium’ since October 2023.
Reverse ‘Kimchi Premium’ Makes Bitcoin Cheaper in South Korea
According to a report Per The Korea Times, there is a price differential of more than $500 between the price of Bitcoin in South Korea and global markets. Analysts attribute this to a negative “kimchi premium.”
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For the uninitiated, the kimchi premium refers to the price difference where BTC trades at a higher price on South Korean exchanges than on global markets. This premium is driven by local demand, regulatory factors and capital controls in South Korea, leading to occasional price discrepancies.
Currently, the kimchi premium is at -0.74%, leading to a lower market price for BTC on South Korean exchanges than the rest of the world. Notably, the kimchi premium has been negative since October 15th.
A positive premium indicates strong demand for the underlying digital asset. In contrast, a negative premium could suggest that investors may be looking to trade on foreign exchanges due to South Korea’s strict regulations surrounding digital assets.
A positive Kimchi Premium is common on South Korean exchanges, which often see high trading volumes. When BTC briefly surpassed $72,000 in March 2024, the kimchi premium rose by as much as 10%.
The report suggests that low domestic investor sentiment is a key factor behind the negative premium. Although global crypto trading volumes have increased due to the upcoming US presidential elections and a Chinese stimulus package, sentiment in South Korea remains tepid. KP Jang, head of Xangle Research, commented:
Korea prohibits foreign and institutional investors from using domestic exchanges, making the decline in demand from retail investors a more direct factor.
Furthermore, the preference for typically riskier altcoins in hopes of extraordinary profits could influence the local South Korean crypto market, diverting attention away from BTC and leading to lower trading volumes.
That said, analysts expect the negative kimchi premium to be a temporary phenomenon. Jang explained that historically, such price discrepancies have only persisted for a short period.
Will a regulatory review help South Korea?
The crypto regulatory framework in the peninsular country is witnessing several changes to streamline the trading of digital assets and ensure the existence of sufficient customer protection mechanisms.
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In 2022, South Korea elected pro-crypto Yoon Suk-Yeol as president. As part of his election campaign, Yoon promised to reduce government interference in crypto markets, calling existing regulations “far from reality and absurd.”
In contrast, neighboring Japan has openly embraced digital assets amid evolving crypto regulations. For example, earlier this year, Japan’s Government Investment Pension Fund (GIPF), with $1.5 billion in assets, express a desire to gain exposure to BTC.
BTC trades at $67,559 at press time, down 0.4% in the last 24 hours. At the time of writing, the leading cryptocurrency commands a total market cap of $1.33 trillion.
Featured image from Unsplash, chart from Tradingview.com