Why the Kimchi Premium Exists and how it benefits South Korean Crypto Traders

What Is Kimchi Premium?

Kimchi premium refers to the difference in the price of a cryptocurrency, particularly Bitcoin (BTC), on South Korean exchanges compared to global crypto exchanges. For example, if the price of Bitcoin is around $45,000 on a global exchange like Binance or Coinbase, BTC could be valued at $47,000 on a South Korean exchange like UpBit due to the Kimchi premium.

This price disparity in different markets is often a result of a combination of various factors, including demand and supply imbalance, regulatory restrictions, and local market sentiment. While the Kimchi premium naturally presents arbitrage opportunities for global traders, it has proven to be difficult to execute due to capital controls imposed by the Korean Central Bank. 

History of Kimchi Premium

The history of the Kimchi premium dates back to the early days of cryptocurrency trading in South Korea. According to a report by the University of Calgary, the market phenomenon first appeared in 2016 when Bitcoin prices on South Korean exchanges began to diverge significantly from prices in the United States, Europe, and other parts of Asia. This price difference was dubbed the "Kimchi premium," taking its name from the staple fermented dish in Korean cuisine.

This premium soared to about 55% by January 2018, driven by a surge in local demand. The Kimchi premium attracted significant attention from global traders and media, highlighting the unique dynamics of South Korea's cryptocurrency market. However, profiting from this price gap can be challenging due to the financial restrictions in the East Asian country. 

For instance, the capital control measures extend the time it takes to send money in and out of South Korea, making it difficult for both local and international investors to complete their arbitrage trades before the premium becomes smaller or completely disappears. Nevertheless, the Kimchi premium remains a key reference point in discussions about regional price differences in the global cryptocurrency market. Over the years this phenomenon has also been observed in other markets due to a variety of reasons.