The price of Bitcoin on most if not all major cryptocurrency exchanges is around $ 58 at the time of writing this article. But in South Korea, the leading crypto asset is currently trading at a 15% premium at $ 68.000, according to TradingView data.
This benefit of over $ 10.000 and more is due to the Kimchi Premium effect, which refers to the difference between the price of cryptocurrencies on Western and South Korean exchanges.
What influences the Kimchi Premium?
The Kimchi Premium is mainly caused by the lack of high yield investment opportunities in South Korea. Some analysts also link it to the high interest in new technologies in the country, as well as its extreme and advanced gambling culture.
While not a new phenomenon in the country, the price difference was nearly twice the average premium between 2016 and 2018. A report titled "Bitcoin Microstructure and the Kimchi Premium" from the University of Calgary estimates the trend is started in 2016. "Between January 2016 and February 2018, Bitcoin in Korea was on average 4,73% more expensive than in the United States."
However, despite the average difference over these two years, the premium has steadily increased since 2017 to levels of up to 50% in some cases. The alarming difference was first noticed in late 2017 during the BTC bull market, when the premium rose to 30%.
The reports further explain that capital controls and the architecture of the Bitcoin network also create and amplify the frictions that contribute to the existence of the prize. "A cross-country comparison shows that Bitcoin tends to be traded at higher prices in countries with less financial freedom."
How South Korean BTC Traders Make Profits?
Traders in South Korea can take advantage of the price difference by buying bitcoins on exchanges outside the country and reselling them at premium rates on local exchanges.
Additionally, they can take advantage of the price difference by using arbitrage opportunities that show the price differences in various local exchanges. This method is, however, short-lived, as when more traders use this technique, the market price adjusts to new offers.
Nigeria also recorded its highest Bitcoin reward effect in February 2021. This was after the central bank announced a ban on all financial institutions from bridging all cryptocurrency-related transactions. Bitcoin is also traded at a premium on other platforms, including digital asset investment funds such as Morgan Creek Digital and Grayscale.
Meanwhile, Bitcoin is still trying to outdo the quotation $ 60.000 after failing to do so in the last few days. This is despite the fact that for some time it managed to reach $ 60.267 as shown by historical data. The next goal is therefore set and this month could be the right one to overcome it.