Bitcoin briefly spiked to a new high of 96,734,000 South Korean Won, equivalent to $72,504, on Upbit, South Korea’s largest cryptocurrency exchange, on March 5th. This price discrepancy is known as the Kimchi Premium or Korea Premium Index, which has been on an upward trend along with Bitcoin‘s price since early February.
Notable Arbitrage Gap in South Korea
According to blockchain data analytics platform CryptoQuant, the Korea Premium Index increased from 5.19 on February 28th to 6.84 on March 5th. This coincided with Bitcoin’s price surge to an all-time high of over $69,200 on March 5th, influenced by ongoing entries into United States Bitcoin ETFs.
CryptoQuant analyst Ho Chan Chung stated that the primary cause of the Bitcoin price increase was institutional demand from the United States. However, the situation in South Korea is different. Since there are no spot Bitcoin ETF funds in the country, the rising Bitcoin price is mainly driven by individual investors’ spot purchases.
The Kimchi premium was first discussed in 2016 and highlighted in a 2019 paper by the University of Calgary. Researchers found that from January 2016 to February 2018, South Korean Bitcoin exchanges witnessed prices on average 4.73% higher than those in the US.
During Bitcoin’s bull run in December 2017, South Korean exchanges traded Bitcoin at roughly 50% higher than most global exchanges, prompting CoinMarketCap to remove some Korean exchanges from its listings due to the extreme deviation from the rest of the world’s prices. During the 2021 bull run, the Kimchi premium peaked at 21.56% on May 19th, before reaching an all-time high in November 2021, when Bitcoin was trading above the $36,000 level.
Some investors may try to profit from these price differences across various exchanges, known as arbitrage. However, this premium continues to surface, especially during strong upward trends, due to market inefficiencies.
South Korea and the Crypto Market
Amidst the growing interest in Bitcoin, South Korea’s financial watchdog is reportedly considering allowing spot Bitcoin ETF funds in the country, which could ultimately end this price discrepancy if approved. According to a March 5th report by Reuters, Financial Supervisory Service Chief Lee Bok-hyun said, “We are discussing this issue internally,” and added, “I am one of those who are positive about crypto assets, but there are also cautious ones, and we need to hear their opinions.”
“Among the authorities, I am one of those who are positive about crypto assets, but there are cautious ones as well, and we need to hear their opinions.”
In January, South Korean financial authorities stated they had no plans to regulate the sale of Bitcoin futures ETF funds. However, they also added that the brokerage sales of spot Bitcoin ETF funds could violate the Capital Market Act. While the Korea Premium Index remained intact with Bitcoin trading around 93,800,000 South Korean Won, equivalent to $70,000 on Upbit at the time of writing, Bitcoin’s price hovered around $66,138 on other crypto exchanges.
