The Bitcoin ‘Kimchi Premium’ jumped to a two-year high of over 10% on Wednesday, March 6th, according to data from CryptoQuant, a South Korean cryptocurrency analytics platform.
The Kimchi Premium is a phenomenon that occurs when the price of BTC is higher in South Korea than in international markets. This is due to a variety of factors, including the lack of high-return investment vehicles, the population’s interest in technology, and possibly the allure of online gambling.
According to Ki Young Ju, the CEO and Founder of CryptoQuant, the rise of the Kimchi Premium indicates that South Korean retail investors are returning to the Web3 space. He added that the Premium is a “pure retail FOMO (Fear of Missing Out) indicator.”
A chart on CryptoQuant shows that the Kimchi Premium Index has largely been level or even negative since early 2022, when the bear market was taking hold. It has started to rise since December 2023, with BTC prices in the country often 3-5% more than in international markets. However, the rise this week has been unusual and indicates a return of Bitcoin fever.
The Kimchi Premium is considered an arbitrage opportunity for traders, who may try to sell their BTC on South Korean exchanges and pocket the difference in the price. However, it has become difficult to do so, as cryptocurrency infrastructure within the country is not great and foreign cryptocurrency trading is significantly restricted.
One cryptocurrency figure (and villain) who claimed to have taken advantage of the Kimchi Premium is jailed Sam Bankman-Fried, the former Founder and CEO of cryptocurrency exchange FTX. He has claimed in many interviews that his firm was able to generate a million dollars per day by exploiting the price difference in 2019 and 2020.
Bitcoin briefly reached a new all-time high in USD earlier this week, before retracing to $67,450 at the time of writing.
South Korea Ponders Spot Bitcoin ETF
Although the Kimchi Premium is fascinating and an opportunity for skilled arbitrage traders, it may come to an end. The reason? The government of South Korea is considering the approval of a Spot Bitcoin ETF.
In an article published two days ago, Lee Bok-hyun, governor of the Financial Supervisory Service in South Korea, told Reuters that the agency is “internally discussing it (the Spot Bitcoin ETF)” and that while he is positive about virtual assets, there are some people in the agency that are wary.
In addition, he has spoken with Gary Gensler, the head of the U.S. Securities and Exchange Commission, regarding Bitcoin ETFs and plans to have more conversations going forward.
If approved, a Bitcoin ETF in South Korea might eliminate the Kimchi Premium, which would put an end to the arbitrage opportunity. But there’s no telling when that day may come, as the wheels of government tend to move slowly, especially with cryptocurrency.
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