Bitcoin is a decentralized cryptocurrency: it flows across borders and isn’t tied to any specific government—meaning no one entity can stop its spread or shut it down. However, what governments can do is limit how citizens are able to spend their money, including how they use their funds to buy Bitcoin.
These limits and restrictions can sometimes affect Bitcoin’s price, which is the case in South Korea with the Kimchi Premium—the gap in Bitcoin price in South Korean exchanges compared to foreign exchanges.
Why does Bitcoin’s price in South Korea vary from other countries?
The Kimchi Premium first appeared in Korea in 2016, according to a report by the University of Calgary—but the question is: why is there a “Kimchi Premium” in the first place? Why does the price of Bitcoin differ in South Korea? There are three main reasons for this:
- The legality of trading in South Korea
Although it isn’t at the level of legal tender in South Korea, it’s completely legal to own Bitcoin and trade it on regulated exchanges.
- People’s open-mindedness to the idea of Bitcoin and digital currencies
Because of the country’s interest in technology, Koreans have been open-minded to the idea of Bitcoin since the beginning, making them early adopters of digital currencies.
- Financial controls that make it hard for local Bitcoin exchanges keep up with demand
Because of instances like the 2007 financial crisis and the European sovereign debt crisis, South Korea imposed capital controls that limit how much currency comes in and out of the country. Regulations also made it hard for Koreans to buy Bitcoin overseas.
Because they have to first convert their local currency into US dollars to buy Bitcoin from foreign markets, these controls can delay South Korean exchanges from shoring up their Bitcoin reserves. Regulators can cap or even block their transactions if there’s any suspicion of money laundering, which is a delay that can cause BTC prices to temporarily rise if the local exchanges can’t keep up with the demand.
How people make the most out of the Kimchi Premium
Bitcoin prices varying from country to country has opened up the doors for a style of trading called Bitcoin arbitrage, which is when you buy low from one place and sell high to another. Here’s how to do it:
- Buy Bitcoin from an exchange outside South Korea
The first step is to buy Bitcoin from a marketplace like Paxful. With over 450 ways to pay on Paxful, you can convert almost any type of money into Bitcoin. There are also thousands of offers from trusted traders, so you’ll not only find a wide range of options but also know that your money is safe on the marketplace.
- Sell the Bitcoin on a South Korean exchange
Because of the higher prices in South Korea, you’ll be able to get more money back if you sell your Bitcoin on a local exchange.
It’s important to note that although it may not feel it, Kimchi Premium arbitrage is completely legal in itself—you just have to comply with foreign exchange laws by declaring your transactions. The arbitrage process is also easier for those living outside of South Korea.
The Kimchi Discount
The Kimchi Premium refers to when the price of Bitcoin is higher in South Korea compared to the rest of the world. However, it isn’t always the case. There are times when the price is lower: the Kimchi Discount. This happens when interest in Bitcoin fall and people sell off their holdings.
This happened as recently as February 2023 when CoinMarketCap was showing BTC’s price at 24,464 USD, while one of the largest exchanges in South Korea was trading Bitcoin at 24,405 USD. Although it may seem small in comparison to Bitcoin’s price spikes and dips in the past, 59 USD is a huge difference for people who are practicing arbitrage.
Many, many opportunities
What the Kimchi Premium shows us is that the Bitcoin community is just growing worldwide. For South Korea, a country that’s familiar with micropayments, has high internet speeds, and a strong presence in gaming—the popularity of Bitcoin is no surprise. In fact, the Kimchi Premium has led to some cryptocurrencies that trade exclusively within South Korea.
For traders outside of South Korea, the Kimchi Premium opens a lot of new money-making opportunities with arbitrage—adding to the vast array of opportunities already available on Paxful. Try it out now and let us know how it goes!