Bitcoin Value Achieves New Heights in South Korea, Reflecting Growing "Kimchi Premium" Phenomenon
Summary:
On March 5, Bitcoin's value soared to a new high on South Korea's leading cryptocurrency exchange, Upbit. The surge, known as the Kimchi Premium, has been rising with Bitcoin's price since February. The spike aligns with Bitcoin's increased value in the US, driven by constant investments into Bitcoin ETFs. With Bitcoin's growing popularity, South Korea is reportedly considering introducing spot Bitcoin ETFs, which might eliminate the existing price disparity. However, retail spot buying predominantly drives the rising Bitcoin price in South Korea due to the absence of spot Bitcoin ETFs.
On March 5, 3:00 pm (UTC), the value of Bitcoin (BTC) momentarily jumped to a record high of 96,734,000 South Korean Won, equivalent to $72,504, on Upbit, South Korea's biggest cryptocurrency trading platform. This rapid value increase, known as the Kimchi Premium or Korea Premium Index, has been growing in tandem with BTC's value since the start of February. On-chain data from CryptoQuant shows that the index escalated from 5.19 at the end of February to 6.84 on March 5.
This rise was concurrent with Bitcoin's value reaching an unprecedented high of over $69,200 on March 5, powered by continual investments into United States’ Bitcoin ETFs. According to Ho Chan Chung, an analyst at CryptoQuant, institutional demands in the US are the primary force behind the Bitcoin price surge, contrasting the South Korean scenario where spot buying by retail consumers primarily propels the rising Bitcoin price, as the country doesn’t offer spot Bitcoin ETFs.
The Kimchi premium phenomenon first came into play in 2016 and was subsequently featured in a 2019 publication from the University of Calgary. From January 2016 up until February 2018, the study found that Bitcoin exchanges in South Korea displayed prices that were on average 4.73% higher compared to US exchanges.
In December 2017, at the peak of Bitcoin's bull run, its prices on South Korean exchanges were nearly 50% more than most global exchanges, prompting CoinMarketCap to exclude some Korean exchanges due to the stark price disparity. When Bitcoin was trading above $36,000 on May 19, the Kimchi premium hit its peak at 21.56% during the 2021 bull run, ahead of achieving its former record high in November 2021.
While some traders are likely looking to capitalize on these price differentials (commonly referred to as arbitrage), the premium is primarily retained because of market inefficiencies, especially in periods of aggressive uptrends.
As Bitcoin gains more traction, reports indicate that South Korea's financial watchdog is pondering over the possibility of introducing spot Bitcoin ETFs, which could ultimately dissolve the existing price disparity if approved. Lee Bok-hyun, the governor of the Financial Supervisory Service, said they are having internal discussions over their stance on digital assets.
In January, South Korean financial authorities clarified that they had no plans to control sales of Bitcoin futures ETFs but warned that any brokerage sales of spot Bitcoin ETFs may be in breach of the Capital Markets Act.
The Korea Premium Index remains significant with Bitcoin currently valued around 93,800,000 KRW ($70,000) on Upbit, as the global BTC price hovers around $67,000. Please note that this information is not financial advice, and individuals should carry out their own research before deciding on investments.
Published At
3/6/2024 3:40:08 PM
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