Kimchi Premium

Kimchi premium is a phenomenon that occurs on South Korean cryptocurrency exchanges, where some tokens’ valuations are greater than on other international platforms. In South Korea, the kimchi premium phenomenon may be seen as a profitable opportunity for traders. However, in order to really secure profits, traders must buy tokens such as Bitcoin on an exchange outside of South Korea and sell them on a Korean exchange like Upbit or Bithumb.

The disparity in exchange values between South Korea and the rest of the globe has a cause. Cryptocurrency trading is decentralized by design, unlike other tradable commodities and assets, which are controlled by centralized organizations. Exchanges across the globe are struggling to keep up with large surges of activity as blockchain technology advances and more crypto tokens emerge. As a result, the kimchi premium phenomena emerge.

In the crypto realm, taking advantage of price discrepancies across exchanges is nothing new. The kimchi premium phenomenon is unique to South Korea; nevertheless, minor price variations may be seen in exchanges all over the globe. Traders have recognized this and have begun profiting from the differences. Arbitrage is the practice of trading across exchanges in order to benefit from variations in value.

Trading to profit on the kimchi premium is technically a kind of arbitrage. South Korean officials, on the other hand, are serious about controlling crypto exchange transactions and eliminating irregularity. Because of the kimchi premium, the government has imposed stringent capital control regulations, which generally prohibit dealers from earning a profit. Other financial laws and anti-money laundering legislation also prevent dealers from using the kimchi premium to manipulate the market.

Around the beginning of 2016, the kimchi premium was first recognized as a phenomenon. According to University of Calgary academics, the most significant differences were caused by kimchi premiums between 2016 and 2018. According to certain estimates, the price differential between one Bitcoin in South Korea and other international exchanges was approximately 55 percent in January 2018. The kimchi premium is about 4.5 percent on average.

While data has proved the kimchi premium, there is little more authorities can do to curb the issue. Due to the decentralized nature of blockchains and cryptocurrencies, implementing regulations that apply to all crypto tokens is just impossible.