Behind the Bitcoin Crash in South Korea: The ‘Kimchi Premium’ Has All Evaporated

Bitcoin mania is cooling, and as it does, the cryptocurrency global market is changing.

The bitcoin price surge began in early November, when talk of bitcoin futures being launched in the U.S. sparked a wave of speculation. Bitcoin was trading at $6,500 on Nov. 1 and rose to $20,000 by mid-December, though that has all but evaporated. While bitcoin’s price has largely stagnated, global trading volumes are still growing and market interest remains strong.

CoinDesk data shows that average daily trading volume in February rose nearly 80% from November, to $8.2 billion, up from nearly $4.7 billion in November. (It was down 40% from January’s $13.4 billion, though.)

However, the biggest change for traders seeking to profit from "arbitrage" is that the market's so-called "kimchi premium" has completely disappeared over 28 trading days in February.

South Koreans are keen on speculating in virtual currencies. The local virtual currency price is much higher than that in overseas markets, so it is jokingly called the "kimchi premium."

As shown in the chart above, the spread was as high as 50% at times, but even turned negative for a short period in early February. At the end of February, the price premium was around $400.

High discounts

The term “kimchi premium” also has a significant impact on market dynamics.

When bitcoin took over South Korea last year, prices on various exchanges began to rise in November and December. At times, the dynamics even caused market disruption.

If the Korean price is not included in the global average price, this in turn causes the market to fall sharply because the price change is not widely disseminated.

However, the South Korean government’s move to curb cryptocurrency speculation has brought about price fluctuations. However, the decline in premiums does not mean that Koreans no longer like cryptocurrencies.

South Korean exchanges continue to lead the trend in Bitcoin trading volume since March. The decline in spreads suggests that market speculation may have been successfully curbed after a series of efforts by the government.

More than just Bitcoin

However, the “kimchi premium” not only affects the Bitcoin market, but other cryptocurrencies are also experiencing the same trend.

For example, Ethereum’s premium hit an all-time high of 53% on January 8, before falling to -5% on February 3. (It is worth noting that 3 of the world’s 15 largest exchanges are in South Korea. In addition, 3 of the five largest Ethereum trading platforms are also South Korean.)

Litecoin, the fifth-largest cryptocurrency by trading volume, is seeing the same trend.

Therefore, the cryptocurrency market has basically normalized after last year’s epic rally, as evidenced by the sharp drop in the “kimchi premium.”