Understanding the Kimchi Premium: What Crypto Investors Need to Know

The Kimchi Premium is a term used to describe the higher price of cryptocurrencies on South Korean exchanges compared to their prices on other exchanges. The name “Kimchi Premium” comes from the traditional Korean dish, kimchi, which is known for its strong and unique flavor. The term was first used in 2017 when the price of Bitcoin on South Korean exchanges was significantly higher than the global average.

There are several factors that contribute to the Kimchi Premium. One of the main factors is the high demand for cryptocurrencies in South Korea. Many people in South Korea see cryptocurrencies as a way to invest their money and avoid the strict regulations and restrictions that come with traditional investments. Another factor is the limited supply of cryptocurrencies on South Korean exchanges, which can drive up the price.

Cryptocurrencies have become a popular investment option for many people around the world. However, the price of cryptocurrencies can vary significantly from one exchange to another. This difference in price is known as the “Kimchi Premium,” and it has become a topic of interest for crypto investors. In this article, we will explain what the Kimchi Premium is and why it matters for crypto investors.

The Kimchi Premium has a relatively short history. It first emerged in late 2016 when the price of Bitcoin on South Korean exchanges was significantly higher than the global average. The premium reached its peak in early 2018 when the price of Bitcoin on South Korean exchanges was nearly 50% higher than the global average.

The emergence of the Kimchi Premium was largely due to the popularity of cryptocurrencies in South Korea. In 2017, South Korea accounted for more than 20% of global Bitcoin trading volume. The high demand for cryptocurrencies in South Korea led to a shortage of supply on local exchanges, driving up the price.

The Kimchi Premium matters for crypto investors because it can have a significant impact on the value of their investments. When the Kimchi Premium is high, it can be an opportunity for investors to make a profit by buying cryptocurrencies on global exchanges and selling them on South Korean exchanges at a higher price. However, the Kimchi Premium can also be a sign of a speculative bubble, which can burst and cause the price of cryptocurrencies to plummet.

In addition, the Kimchi Premium can also have an impact on the broader crypto market. If the premium is high, it can attract more investors to the market, which can drive up the prices of cryptocurrencies globally. Conversely, if the premium collapses, it can cause panic and lead to a broader sell-off in the crypto market.

One of the reasons why the Kimchi Premium exists is due to South Korea’s capital control policies. Capital controls are regulations or measures imposed by a government to restrict or regulate the flow of capital in and out of a country. In South Korea, these capital controls limit the amount of money that can be transferred outside of the country.

This means that South Korean investors have limited options when it comes to buying and selling cryptocurrencies on global exchanges. As a result, they often turn to domestic exchanges where they can trade cryptocurrencies using the local currency, the South Korean won.

However, due to the high demand for cryptocurrencies in South Korea, the price on these domestic exchanges is often higher than on global exchanges. This difference in price is what creates the Kimchi Premium.

The South Korean government implemented these capital controls to prevent a sudden outflow of capital that could destabilize the economy. While they have been effective in achieving their goal, they have also unintentionally created an opportunity for investors to profit from the price differences between domestic and global exchanges.

In recent years, there have been some loosening of these capital control policies in South Korea, which has led to a decrease in the Kimchi Premium. However, it still exists and can present an opportunity for investors who are willing to take on the associated risks.

It is important to note that while the Kimchi Premium can present an opportunity for profit, it is not a reliable or sustainable source of income. The premium is volatile and can disappear quickly, as seen in the 2018 crash. Therefore, investors should approach it with caution and only invest what they can afford to lose.

One example of the Kimchi Premium occurred in early 2018 when Bitcoin’s price on South Korean exchanges surged to almost 50% higher than its price on global exchanges. This price discrepancy was due to the high demand for Bitcoin in South Korea and the strict capital controls that made it difficult for South Koreans to purchase Bitcoin on global exchanges.

The Kimchi Premium attracted many international investors who saw an opportunity for profit. They would buy Bitcoin on global exchanges and transfer it to South Korean exchanges to sell at a higher price. This strategy worked well for a short period of time, but the South Korean government soon implemented stricter regulations on cryptocurrency trading, and the Kimchi Premium disappeared almost as quickly as it had appeared.

The example of the Kimchi Premium in 2018 highlights the volatility and risks associated with this phenomenon. While some investors were able to capitalize on the price differences and make a profit, others were caught off guard by the sudden disappearance of the premium and suffered losses. It is important for investors to approach the Kimchi Premium with caution and consider the potential risks before making any investment decisions.

Investors can buy cryptocurrencies on global exchanges by creating an account on an exchange that supports their preferred cryptocurrency and funding the account with fiat or crypto.

No, the Kimchi Premium is volatile and can disappear quickly. It is challenging to predict when it will emerge or how long it will last.

The risks associated with taking advantage of the Kimchi Premium include high fees, currency exchange rates, and the potential for the premium to disappear.