The Korean premium index, popularly known as the “Bitcoin Kimchi Premium,” went against the flow during Monday morning trading to reach a 10-month high despite the global crypto market experiencing a severe market dip.
According to data from CryptoQuant, the South Korea premium index rose to a record 9.7%, its highest since April 14, 2024. However, by the time of writing, the premium was down slightly to 8.2%.
Price Differential Attracts Traders to the Korean Market
The Bitcoin Kimchi premium refers to the difference in Bitcoin prices between local exchanges and foreign exchanges. The price difference is primarily noticeable in Bitcoin, where prices are relatively higher than in other Asian nations or Western European markets.
The visible difference between South Korean prices and others incentivizes an influx in BTC trading. Traders are primarily motivated to buy more significant amounts of Bitcoin from their local markets to sell it back to the Korean market to profit from the price difference, which is popularly known as arbitrage trading. As Bitcoin’s price tanked below the $92,000 mark and Ethereum was down at least 20%, the Korean premium index went up, considering it can be difficult for foreign investors to enter.
Bitcoin Kimchi Premium Rises in Bull Markets
According to a report by a popular publication citing analyst Min Jung from Presto Research, the Bitcoin Kimchi Premium could remain high as long as American investors maintained their tempo. Commenting on the developing situation, Jung stated:
“The Kimchi Premium typically rises in bull markets when Korean investors bid higher, but it can also spike during panic selling […] however, historically, the Kimchi Premium has averaged around 5%. If the market stabilizes and rebounds, we would likely see the premium narrow back toward that level.”
Arbitrage trading refers to a strategy in the financial markets that takes advantage of price differences at different markets. Regarding crypto trading, traders taking advantage of the Bitcoin Kimchi premium buy the asset at markets where the price is slightly lower and sell it to the Korean market to profit from the difference. However, the arbitrage strategy is short-lived mainly because traders only take advantage of the price difference to the point where the opportunity remains profitable.
Impact of Strict Regulations on Arbitrage Trading
Compared to other Asian nations, South Korea hosts among the most active cryptocurrency markets globally, leaning heavily towards altcoins despite the strict local regulations. Regarding the Bitcoin Kimchi premium, there are times when traders cannot fully participate in arbitrage trading for various reasons. For example, traders are expected to follow a strict code of conduct with policies that require users to process overseas remittances to buy cryptocurrency on foreign exchange.
Crypto-Financial Currency or Goods?
Moreover, the legal status of the local cryptocurrency market mostly remains vague as the government has yet to decide whether to classify cryptocurrencies as goods or a financial currency. If the government should classify cryptocurrencies as a monetary currency, digital assets would be subjected to the “Foreign Exchange Transactions Act.” This would mean that anyone who wanted to bring crypto into South Korea would first be required to declare it to the South Korean bank. On the other hand, if they were to be declared goods, digital assets would be subject to the local “Custom Law” and Foreign Trade Act” and be reported as imports and exports to customs.
Conclusion
The Bitcoin Kimchi Premium coincided with US President Donald Trump’s announcement introducing strict tariffs on goods imported from China, Canada, and Mexico. Experts believe investors’ growing concerns shook the global market, raising concerns about their impact on US inflation before finally extending to the crypto market, causing the surge in the Korea premium index.
Frequently Asked Questions (FAQs)
What is crypto arbitrage trading?
Arbitrage trading is a strategy that takes advantage of price differentials in different markets. Investors can buy assets at a lower price on one exchange and sell them at a higher price on another.
Does crypto arbitrage work?
Successfully managing arbitrage trading is tricky due to the speed needed to make decisions and execute a profitable trade before price movements occur. However, there are platforms today that offer automated solutions.
What Are the types of crypto arbitrage trading?
Different types of arbitrage trading include cross-exchange arbitrage, spatial arbitrage, and triangular arbitrage.
How much can I expect to make?
While it’s difficult to pinpoint how much you could probably make, some factors like the amount invested, market conditions and volatility could play a big role
References
Coindesk
Investopedia
The Bit Journal – Read More