The “Kimchi premium,” denoting the discrepancy in Bitcoin prices between Korean exchanges and global platforms, has reached a two-year high, currently standing at a 10% premium in South Korea. This resurgence has reignited interest in an arbitrage strategy, notably associated with Sam Bankman-Fried, the founder of Alameda Research and FTX exchange.
Bankman-Fried’s acclaimed success with this arbitrage trade during 2019 and 2020, where the premium reportedly reached 50%, enabled substantial daily profits for his firm, according to CNBC. The essence of the trade involves purchasing Bitcoin on a global exchange, transferring it to a Korean exchange, and selling it for a riskless profit in Korean won.
While the theoretical concept is straightforward, realizing gains from this arbitrage proves operationally challenging. South Korea’s strict capital controls create obstacles for withdrawing significant amounts of money from the country. This limitation hinders both large funds from capitalizing on the trade and smaller investors lacking the necessary infrastructure.
The current Bitcoin prices, hovering just above $66,000 on global exchanges, contrast significantly with the over 93 million won value on Korean exchanges like Upbit, translating to over $71,000 at prevailing exchange rates.
Market observers suggest that the resurgence of the “Kimchi premium” may signify increased retail participation and heightened local demand for the digital asset. Ki Young Ju, founder of CryptoQuant, views the “Korea Premium Index” as a pure retail FOMO (Fear of Missing Out) indicator, as he mentioned on X.
CryptoQuant’s head of research, Bradley Park, notes that some traders are likely capitalizing on the arbitrage opportunity as the Kimchi premium expands. He anticipates that this trend will lead to an increase in Bitcoin reserves on platforms like Upbit.