Even after surpassing the “psychological resistance level” of 100 million won, bitcoin continues its upward trend in the domestic market.
In particular, a phenomenon known as the “kimchi premium” is observed, where the price of bitcoin in the domestic market is forming higher than that in the U.S. market. While the “Korea discount,” which refers to an undervaluation of Korean stocks, is common in the stock market, there is rather a “Korea premium” occurring in the cryptocurrency market.
Along with the analysis attributing it to speculative demand, there are also observations pointing to structural issues stemming from capital controls by domestic financial authorities.
According to CoinMarketCap, a global cryptocurrency market data website, on March 13, the price of bitcoin as of 4:25 p.m. on the same day was moving around the US$73,000 mark, showing a 0.91 percent increase compared to 24 hours ago. This represents a more than 10 percent increase compared to a week ago, continuously setting new all-time highs.
At the same time, bitcoin was traded at 102,814,000 won and 101,976,000 won on domestic cryptocurrency exchanges Upbit and Bithumb, respectively. With prices reaching up to 130 million won during the trading session on Upbit, bitcoin prices continue to soar in the domestic market.
The kimchi premium, which signifies the price difference between domestic and overseas exchanges for bitcoin, stood at 6.22 percent on Upbit and 5.77 percent on Bithumb.
On March 5, when it surpassed its historical all-time high in November 2021, the kimchi premium exceeded 12 percent.
According to CoinMarketCap, Upbit, the leading cryptocurrency exchange in terms of market share in South Korea, recorded a trading volume of US$7,352 million in the last 24 hours. This places it as the fifth largest exchange globally in terms of trading volume.
According to research conducted by the University of Calgary in Canada in 2019, South Korean bitcoin exchanges exhibited an average price that was 4.73 percent higher than that of U.S. exchanges from January 2016 to February 2018. During the bullish market in December 2017, South Korean exchanges traded bitcoin at prices up to 50 percent higher than those of most exchanges around the world.
Quoting CryptoQuant analyst Chung Ho-chan, “The rally in bitcoin prices is mainly driven by institutional demand in the United States, but not in South Korea. South Korea lacks spot bitcoin exchange-traded funds (ETFs), so retail spot purchases primarily drive bitcoin price increases.” This analysis suggests that speculative demand generates premiums.
Some argue that the occurrence of the kimchi premium is not solely due to speculation but also due to capital flow control in the South Korean market. Jung Seok-moon, the head of the Korbit Research Center, stated, “South Korea has been controlling foreign exchange transactions under the ‘Foreign Exchange Management Act,’ which has been in place since 1961 and was revised to the ‘Foreign Exchange Transactions Act’ in 1998, shortly after the IMF economic crisis. For this reason, a supply bottleneck occurs, leading to the premium when demand for bitcoin increases domestically.”
The U.S. cryptocurrency specialized media Cointelegraph also commented, “Generally, cryptocurrency prices on South Korean exchanges differ from those on foreign platforms mainly due to strict capital control policies imposed by regulatory authorities. Foreign investors, including institutions, are prohibited from trading on South Korean exchanges, and domestic traders face penalties for engaging in arbitrage trading. With limited domestic cryptocurrency supply and high demand, the price gap widens.”