March 7, 2024 at 11:11 GMTModified date: March 7, 2024 at 11:11 GMT
March 7, 2024 at 11:11 GMT

South Korean Bitcoin Arbitrage makes a comeback, previously fuelled SBF with millions

The kimchi premium is at a 27-month high, giving crypto investors a unique arbitrage opportunity.

South Korean Bitcoin Arbitrage makes a comeback, previously fuelled SBF with millions

South Korea is witnessing the resurgence of the “kimchi premium”, a term that refers to the higher price that Bitcoin ($BTC) trades on South Korean exchanges compared to global averages. 

Currently, the premium has escalated to a 27-month high of around 10%, a phenomenon that has historically opened arbitrage opportunities for traders.

How does the “kimchi premium” work?

The “kimchi premium” represents the price gap between Bitcoin traded on South Korean exchanges and its global market value. As of now, Bitcoin is trading at more than 93 million won (around $71,000) on South Korean platforms like Upbit, which is significantly higher than its price on international exchanges, where it hovers just above $66,000.

The arbitrage strategy involves purchasing Bitcoin on a global exchange and selling it at a higher price in South Korea. 

The price difference is thought to be caused by the soaring demand and limited supply of $BTC in South Korea.

A notable case of exploiting the “kimchi premium” involves Sam Bankman-Fried, the founder of the now-defunct trading firm Alameda Research and the FTX crypto exchange.

In various interviews, Bankman-Fried reported that during 2019 and 2020, the premium reached up to 50%, enabling his company to earn up to a million dollars daily.

Challenges in Bitcoin arbitrage trading

However, taking advantage of the “kimchi premium” is easier said than done due to South Korea’s strict financial regulations and capital controls, which restrict the withdrawal and transfer of large sums of money. 

South Korean traders buying substantial amounts of cryptocurrency from abroad for arbitrage purposes risk facing penalties under the country’s Foreign Exchange Transactions Act.

This has resulted in large investment funds finding it hard to engage in these trades, and smaller investors lacking the necessary resources.

South Korea’s soaring crypto demand

The spike in the “kimchi premium” coincides with a global uptick in Bitcoin prices, with the cryptocurrency recently surpassing the $69,000 mark and recording a new all-time high. In South Korea, the surge has been even more pronounced, with prices exceeding 97 million won on local exchanges.

This resurgence of investor interest in South Korea is indicative of a broader trend of retail investment in the cryptocurrency market. According to Ki Young Ju, founder of CryptoQuant, the premium can be seen as an indicator of retail investor “FOMO” (fear of missing out) in the country.