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While Bitcoin (BTC) traded below $40,000 in the recent price decline after China released its crypto warning, the crypto is actually trading higher on South Korean platforms. Due to the “kimchi premium,” South Korean crypto investors are paying around $5,000 more compared to their international counterparts.
While BTC traded at $39,932 on Coinbase on Wednesday, the price of the crypto is more than $5,000 higher on South Korean exchanges. For instance, BTC was trading at $45,115 on Bithumb, according to Cointelegraph.
The kimchi premium is the difference between Bitcoin’s price on South Korean exchange and the rate on international platforms. According to Bank of America, this difference is due to capital flow controls meant to curb cross-border flows of hot money, which prevents arbitrage, according to Reuters.
“The onshore price for cryptocurrencies in Korea is persistently above international prices suggesting this to be a result of effective capital control that prevents effective arbitrage of onshore and offshore prices,” Bank of America said in a report. “Korean capital controls allow the ‘Kimchi premium’ to persist.”
Even with the recent BTC price decline of around 39 percent from the crypto’s all-time high set in April, a 12.5 percent premium on Bitcoin still persists in Korean platforms. Crypto trading volume in South Korea set new records in the first quarter of 2021 as it soared above 1,480 trillion won or around $1.3 trillion.
Indeed, cryptocurrencies have become very popular in South Korea with younger investors leading the charge. Young Korean employees are turning to Bitcoin and crypto investing as a way to generate the wealth needed to fund their dreams.
Usually, it’s the dream of owning their own homes that are motivating these young Korean employees to invest in cryptos. “I face the reality of being unable to afford my own home no matter how hard I save up my salary,” an office worker in his 30’s said. “Despite severe volatility, there is no other way than cryptocurrency investments for me to accumulate wealth.”
It has reached a point where people are willing to leave their jobs to focus on crypto trading. “Most employees of IT companies in this area invest in cryptocurrency, and we're seeing workers quit after making more profits from their cybercash investments than their jobs,” a team leader at a South Korean tech startup said. “This is one of the reasons that IT companies have recently rushed to give big pay rises to their staff.”
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