The Kimchi Premium refers to the difference in the price of Bitcoin (BTC) and other cryptocurrencies between South Korean exchanges and international exchanges. This premium is typically higher than the premium for other cryptocurrencies, and it has been attributed to a number of factors, including strong demand for cryptocurrencies in South Korea, regulatory uncertainty in other countries, and the use of Korean won (KRW) as a primary trading currency on South Korean exchanges.
Main Factors that Contribute to the Kimchi Premium
Regulatory Uncertainty: South Korea has been one of the most active countries in regulating cryptocurrency exchanges. In 2017, the government banned anonymous cryptocurrency trading, and in 2018, it required all cryptocurrency exchanges to register with the Financial Services Commission (FSC). These regulations have made it more difficult for South Korean investors to trade cryptocurrencies on international exchanges, which has increased demand for cryptocurrencies on South Korean exchanges.
KRW Trading Pairs: Most South Korean exchanges only offer KRW trading pairs, which means that investors can only buy and sell cryptocurrencies using KRW. This has created a captive market for cryptocurrencies on South Korean exchanges, which has driven up prices.
Arbitrage Opportunities: The high Kimchi Premium has created opportunities for arbitrageurs to buy BTC on international exchanges and sell it on South Korean exchanges for a profit. This has helped to keep the Kimchi Premium high, as arbitrageurs have been willing to buy BTC at a higher price on international exchanges as long as they can sell it for an even higher price on South Korean exchanges.
Cultural Factors: Some analysts have also suggested that cultural factors may play a role in the Kimchi Premium. South Koreans are generally more risk-tolerant than investors in other countries, and they may be more willing to invest in risky assets such as cryptocurrencies. Additionally, South Koreans are generally more tech-savvy than people in other countries, and they may be more likely to adopt new technologies such as cryptocurrencies.