‘Kimchi’ Premium in South Korea Soars Along With Bitcoin Price

Mar 15, 2024

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With Bitcoin reaching a new all-time price high, the market has been in a general state of optimism. After enduring a winter that lasted roughly 2 years, the industry has not only come out of a slump but is breaking new barriers as it does. The bitcoin halving is still only weeks away, which could signal even further milestones in terms of price.

But even as all this happens, certain disparities in the industry are once again being brought to light. Specifically, the kimchi premium on crypto assets is observed within the South Korean market.

What is the Kimchi Premium?

The Kimchi premium is the gap between the price of Bitcoin in the wider market and the price that is listed on South Korean trading platforms. This kimchi premium is caused by strict capital control measures within the country that prevent foreign investors from trading and local ones from engaging in arbitrage trading. This means that the amount of Bitcoin that flows into the market is lower than its demand. So, there is a premium.

A Bitcoin token could, for example, cost $30,000 in countries where Bitcoin is freely accessible but cost $35,000 in South Korea. In this case, the Kimchi premium is $5,000 or 16.66%. This has historically been the case but with the recent bull run, the kimchi gap has reached a new all-time high of over 10%.

What Causes It?

While we’ve already explained that local laws make it harder for locals to access Bitcoin, there are more factors at play here. First, there are the growing use cases of Bitcoin. Besides the obvious appeal of buying and selling tokens, Bitcoin is being more widely used for things like , buying goods and services, and even saving.

Then there are the people who still find ways to engage in arbitrage trading despite the laws. The way some see it, it is yet another way to make money from Bitcoin; buying it on a non-Korean exchange at the official price and reselling it in Korea at a higher price. During bull runs and ahead of halvings, the chances of making a profit are higher so this pushes the kimchi premium higher as well.

How Does This Impact the Industry?

As long as the current capital control laws in South Korea remain, so will the kimchi premium. This means that both locals and foreigners will try to take advantage of the situation by arbitrage trading. Because and has uses outside of speculative trading, its demand will continue to rise. While this means more profits for entrepreneurs in the space who can capitalize off the demand, the price burden is paid by consumers.

But if the laws are made less stringent over time, investors in the country can buy tokens at the same rate as others. This not only saves money but ensures uniformity in the industry as well.

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