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Bitcoin (BTC) is trading slightly lower in South Korea compared to global cryptocurrency markets due to a reverse, invisible ‘kimchi premium’. since October 2023.
Reverse ‘Kimchi Premium’ Makes Bitcoin Cheaper in South Korea
According to a report by the Korea Times, there is a price difference of more than $500 between the price of Bitcoin in South Korea and the global market. Analysts say this is due to the negative ‘kimchi premium’.
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For the uninitiated, the kimchi premium refers to the price differential where BTC trades at a higher price on the South Korean exchange than on global markets. This premium is driven by local demand, regulatory factors, and capital controls in South Korea, resulting in price variations from time to time.
Currently, the kimchi premium stands at -0.74%, resulting in a lower BTC market value on the South Korean exchange than the rest of the world. Notably, the kimchi premium has been negative since October 15.
The favorable premium reflects strong demand for the underlying digital asset. Conversely, a negative premium may suggest that investors may be looking to trade foreign exchange due to South Korea’s strict regulations surrounding digital assets.
Good Kimchi Premium is common in South Korean trading, which usually has high trading volumes. When BTC briefly crossed $72,000 in March 2024, the kimchi premium rose to 10%.
The report suggests that low sentiment among domestic investors is a key factor in negative returns. While crypto trading prices around the world have risen due to the upcoming US presidential election and China’s stimulus package, sentiment in South Korea remains lukewarm. KP Jang, head of Xangle Research, commented:
Korea restricts foreign and institutional investors from using domestic exchanges, making the decline in investor demand a definite factor.
In addition, favoring high-risk altcoins in the hope of extraordinary profits may have an impact on the local crypto market of South Korea, diverting attention from BTC and leading to a decrease in trading volumes.
That said, analysts expect the negative kimchi premium to be short-lived. Jang explained that, historically, such price differences have lasted for a short period of time.
Will Reforms Help South Korea?
The crypto regulatory framework in the peninsular country is witnessing several changes to improve the trading of digital assets and ensure that there are adequate mechanisms to protect customers.
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In 2022, South Korea the chosen one pro-crypto Yoon Suk-Yeol as president. As part of his election campaign, Yoon promised to reduce government interference in crypto markets, calling existing regulations “far from the truth and unreasonable.”
In contrast, neighboring Japan has openly embraced digital assets amid evolving crypto regulations. For example, earlier this year, Japan’s Government Investment Pension Fund (GIPF), with assets of $1.5 trillion, revealed desire to gain exposure to BTC.
BTC is trading at $67,559 at press time, down 0.4% in the last 24 hours. At the time of writing, the leading cryptocurrency commands a market capitalization of $1.33 trillion.
Featured image from Unsplash, Chart from Tradingview.com
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