The Kimchi premium is basically the price gap for cryptocurrencies, especially Bitcoin (BTC), between South Korean exchanges and the rest of the world. So, if Bitcoin is priced at about $45,000 on a global platform like Binance or Coinbase, it might go for around $47,000 on a South Korean exchange like UpBit because of this Kimchi premium.
The difference in prices across various markets usually comes from a mix of factors like supply and demand issues, regulations, and how the local market feels. Even though the Kimchi premium offers chances for global traders to make some profits, actually taking advantage of it is tough because of the capital controls set by the Korean Central Bank.
The History of Kimchi Premium
The Kimchi premium has its roots in the early days of cryptocurrency trading in South Korea. A report from the University of Calgary notes that this market phenomenon first emerged in 2016 when Bitcoin prices on South Korean exchanges started to significantly differ from those in the United States, Europe, and other regions in Asia. This price discrepancy was named the “Kimchi premium,” after the popular fermented dish in Korean cuisine.
By January 2018, this premium had skyrocketed to around 55%, fueled by a surge in local demand. The Kimchi premium caught the eye of global traders and media, showcasing the unique characteristics of South Korea’s cryptocurrency market. However, making a profit from this price difference can be tough due to the financial regulations in the East Asian nation.
For example, the capital control measures slow down the process of transferring money in and out of South Korea, which complicates things for both local and international investors trying to finish their arbitrage trades before the premium shrinks or vanishes entirely. Still, It is an important reference in conversations about price variations in the global cryptocurrency market. This phenomenon has also been seen in other markets over the years for various reasons.