Imagine you’re shopping for your favorite gaming console, and you find out that it is much more expensive in one country than it is in another. In the world of cryptocurrencies, something similar happens, called the “Kimchi Premium.” Let’s dive into this in really simple terms.
What is the Kimchi Premium?
The Kimchi Premium refers to a situation where cryptocurrencies, especially Bitcoin (BTC), are priced higher on South Korean exchanges compared to the rest of the world. This is named after “kimchi,” a famous Korean dish, because the phenomenon is mainly seen in South Korea.
Source | Korean Bapsang
Why Does It Happen?
- High Demand in South Korea: South Koreans love cryptocurrencies. There are a lot of people in South Korea who want to buy Bitcoin and other digital coins. But because there isn’t enough Bitcoin to go around inside South Korea, the price goes up there compared to places where there’s more supply.
- Capital Controls: South Korea has rules that make it hard for money to flow in and out of the country. This means if you want to buy Bitcoin from outside South Korea to sell it there for a profit, it’s not straightforward. These rules can lead to less Bitcoin coming into the country, keeping the prices high.
- Regulations: The South Korean government has some strict rules about cryptocurrency trading, which can sometimes make trading on local exchanges more appealing than going through international ones.
Comparing Exchanges
On Millionero, Bitcoin is trading at 98,045 USDT. Over in South Korea, on an exchange like Upbit, the same Bitcoin is selling for 146,409,000 KRW. That’s 100,428 USDT! A difference of 2,383 USDT, or about a 2.43% premium. This gap is what we call the Kimchi Premium.
South Korean exchanges like Upbit list cryptocurrencies against the Korean Won (KRW). For instance, the trading pair BTC/KRW shows how much Bitcoin costs in KRW. This price often includes the Kimchi Premium.
Source | Upbit.com
By contrast, on global exchanges such as Millionero, which operates across Europe and provides trading pairs against USDT, prices might reflect the global market average without the regional premiums seen on South Korean platforms. This difference highlights how localized demand and restrictions can influence prices in significant ways.
How Does It Look for Other Tokens?
- As you can see in this image taken from dexu.ai, there are constantly some pretty huge Kimchi Premiums across major tokens like $ME, $MOVE, $DRIFT, $APT.
- Volatility: The Kimchi Premium isn’t constant. It can go up or down based on factors like changes in local regulations, global price movements, or fluctuations in demand from South Korean investors.
Source | Dexu.ai
Historical Context
The Kimchi Premium became very famous around 2017-2018 when Bitcoin’s price on South Korean exchanges was sometimes 50% higher than elsewhere. It’s not always that high now, but it still exists. In 2021, the premium was around 4%, showing that although it’s less dramatic, it’s still there.
Impact on Investors
- For South Koreans: They might feel they’re paying more, but for many, it’s about convenience or trust in local exchanges.
- For Global Investors: There’s an opportunity to profit from the price difference, but it comes with risks due to regulatory and logistical challenges.
Closing Thoughts
The Kimchi Premium is a fascinating example of how local market dynamics can lead to significant price differences in cryptocurrencies. Platforms like Millionero, which cater to a global audience, reflect the importance of understanding such regional variations in pricing.
For investors, being aware of the Kimchi Premium can offer insights into market sentiment and trading strategies, but it also underscores the importance of considering local regulations and the complexities of cross-border trading.
This article is not financial advice—always Do Your Own Research (DYOR). You can also explore more educational content on blog.millionero.com to expand your understanding. When you’re ready and informed, you can trade spot and perpetuals on Millionero.