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Bitcoin (BTC) is trading slightly lower in South Korea compared to global cryptocurrency markets due to a reverse “kimchi premium,” which has not been seen. since October 2023.
Reverse ‘Kimchi Premium’ Makes Bitcoin Cheaper in South Korea
According to A a report By The Korea Times There is a price difference of more than $500 between the price of Bitcoin in South Korea and global markets. Analysts attribute this to the negative “kimchi premium.”
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For starters, the kimchi premium refers to the price difference where BTC is trading at a higher price on South Korean exchanges compared to global markets. This premium is driven by domestic demand, regulatory factors, and capital controls in South Korea, which sometimes results in price differences.
Currently, the kimchi premium is -0.74%, resulting in a lower market price of BTC on South Korean exchanges compared to the rest of the world. Notably, the kimchi premium has been negative since October 15.
A positive premium indicates strong demand for the underlying digital assets. In contrast, a negative premium may indicate that investors may be looking to trade on foreign exchanges due to South Korea’s strict regulations regarding digital assets.
A positive Kimchi Premium is common on South Korean exchanges, which often see high trading volumes. When BTC briefly topped $72,000 in March 2024, the kimchi premium rose to 10%.
The report indicates that low domestic investor sentiment is a major factor behind the negative premium. While global cryptocurrency trading volumes are up due to the upcoming US presidential election and China’s stimulus package, sentiment in South Korea remains tepid. KP Jang, Head of Xangle Research, commented:
Korea bars foreign and institutional investors from using local exchanges, making the decline in demand from retail investors a more immediate factor.
Furthermore, the preference for typically riskier altcoins in the hope of generating extraordinary profits may impact the local cryptocurrency market in South Korea, pushing attention away from Bitcoin and leading to lower trading volumes.
However, analysts expect the negative kimchi premium to be a temporary phenomenon. Gang explained that such price discrepancies, historically, only lasted for a short period.
Will regulatory reform help South Korea?
The peninsula country’s cryptocurrency regulatory framework is undergoing several changes to simplify digital asset trading and ensure adequate mechanisms are in place to protect customers.
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In 2022, South Korea elected Cryptocurrency advocate Yoon Suk-yeol as president. As part of his election campaign, Yoon promised to limit government interference in cryptocurrency markets, calling current regulations “out of touch and ridiculous.”
In contrast, neighboring Japan has openly embraced digital assets amid evolving cryptocurrency regulations. For example, earlier this year, the Japanese Government Investment Pension Fund (GIPF), with assets worth $1.5 trillion, Express Desire to gain exposure to BTC.
Bitcoin is trading at $67,559 at press time, down 0.4% over the past 24 hours. When writing, the leading cryptocurrency commands a total market capitalization of $1.33 trillion.
Featured image from Unsplash, chart from Tradingview.com