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What Is Kimchi Premium and How Does It Work?
The kimchi premium refers to the difference between bitcoin pricing of South Korean exchanges and those on other exchanges across the world. When it comes to cryptocurrency prices, the kimchi premium is most prominently evident in the price of the highly popular cryptocurrency, Bitcoin (BTC).
To put it another way, the price of Bitcoin on a South Korean exchange may be much greater than the price of Bitcoin on an exchange in the United States or Europe, depending on the exchange. The word has actually originated from the Korean cuisine where Kimchee premium is referred to a cabbage specialty that is highly popular.
Key Points Briefly
The kimchi premium is the difference in the pricing of cryptocurrencies on South Korean exchanges and those on international platforms.
It is possible that the price disparity is due to a scarcity of high-yield investment opportunities for South Korean investors.
Investors in South Korea may only benefit from the kimchi premium if they purchase Bitcoin from a foreign country and resale it in their own country.
South Korean investors, on the other hand, will find it impossible to benefit from the kimchi premium due to capital restrictions and banking laws.
The Kimchi Premium Has a Long and Proven History
South Korea's bitcoin price did not vary much from the prices of bitcoin in other Western and Asian countries at the start of 2017.
However, it wasn't until the end of 2017 that the disparity in bitcoin prices (also known as the kimchi premium) became apparent, with the discrepancy reaching as high as 30%.
During the first quarter of 2018, the kimchi premium continued to remain bullish, with the price difference reaching astonishing levels of more than 50 percent. The reason is blamed on any other viable investment alternatives in South Korea that has fueled the price rise and demand for these cryptocurrencies among the population.
It could also be seen as a direct link as the country’s link with technology and the growth in other technical interests and sports such as gambling.
Despite the high premium, a whole new population has taken to investing in cryptocurrencies and doesn’t mind paying the high fees for Kimchi Premium.
Example of Kimchi Premium
Kimchi premium is the difference in pricing of bitcoin in South Korea and cryptocurrency in other Western and Asian countries. Let us try to explain this through a mathematical illustration for clarity.
The Kimchee premium in South Korea will be 16%, if the price in the United States of America of one Bitcoin is $15,000, then it’s cost in South Korea will be $17,400.
What are Bitcoin and Arbitrage Trading, and how do they work?
Bitcoin
Bitcoin is fast gaining popularity because of digital money that was invented in 2009. As a result of its high exchange rate, it has gained widespread acceptance around the world as a result of computational solutions. Despite seeing a volatile 2021 and some crashes in its value, 1 Bitcoin (BTC) is equivalent to $34,000. There are still many critics for this currency and central banks warn using it.
What is Arbitrage Trading?
A trading technique that takes advantage of price discrepancies in the market is known as arbitrage trading or arbitrage trading strategy. Like we previously stated, cryptocurrency traders are known to exploit this loophole of the kimchi premium by buying bitcoin from their own market and then reselling it on the Korean market for a massive income.
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