Bitcoin trades at discount in Korea despite global rebound
A man looks at an electronic signboard displaying the price of Bitcoin at the lounge of Bithumb, Seoul, Wednesday. Yonhap
In spite of a global rebound, Bitcoin is trading slightly lower in Korea, creating a reverse "kimchi premium." Analysts attribute this discrepancy to relatively higher demand for virtual assets in foreign exchanges, coupled with subdued investor sentiment in the Korean market.
The kimchi premium refers to a phenomenon where cryptocurrencies in Korea trade above global rates.
According to market tracker Cryprice, Bitcoin’s kimchi premium stood at -0.74 percent as of 3 p.m. on Thursday. This means that Bitcoin was about 700,000 won ($511.73) cheaper at domestic exchanges than global ones. The negative premium has persisted since Tuesday.
This pattern is unusual for domestic investors, as the premium has traditionally been a hallmark of Korea’s cryptocurrency market, known for its high trading volumes. In March, when Bitcoin surpassed the 100 million won mark for the first time in Korea, the premium briefly increased to as much as 10 percent.
Market analysts cite sluggish domestic investor sentiment as the primary factor behind the current negative premium. Overseas, trading volumes surged amid optimism surrounding the U.S. presidential election and China’s announcement of new stimulus measures, driving Bitcoin prices up by more than 5 percent on Tuesday.
"Korea prohibits foreign and institutional investors from using domestic exchanges, which makes the decline in retail investor demand a more direct factor," KP Jang, head of Xangle Research, explained.
"Since March, the overall cryptocurrency market has either declined or stagnated," Declan Kim, a research analyst at DeSpread, added. "The implementation of the Virtual Asset User Protection Act is still in a transitional phase, and the altcoin market, which makes up the majority of domestic trading, continues to struggle."
Market insiders note that following the new virtual asset law's implementation, many altcoins remain unlisted compared to foreign exchanges. Along with the ban on market-making, securing liquidity in the Korean market has become even more difficult, they said.
"Since each exchange manages its own liquidity and order book independently, market connectivity remains weak. Furthermore, restrictions on deposits and withdrawals with foreign exchanges limit arbitrage opportunities, causing price discrepancies to occur more frequently in the virtual asset market than in traditional financial markets," Jay Jo, a senior research analyst at Tiger Research, explained.
"While some investors may profit in the short term, these imbalances can ultimately weaken market efficiency and stability," he added.
Analysts expect the reverse premium to be temporary and believe it will likely disappear if the current bull market continues.
"I expect this one will also be resolved soon, as reverse kimchi premiums have rarely persisted for long periods in the past," Jang said. "In addition, Korea is actively discussing legislation to permit corporate investments in virtual assets. In the long run, this is expected to improve liquidity at domestic exchanges and gradually reduce the price gap with foreign exchanges."