‘Kimchi Premium’: Understanding South Korea’s Crypto Mania

While cryptocurrency trading remains a niche activity in many parts of the world, South Korea has emerged as a global leader in the crypto space. The volume of crypto trading in the country has surpassed that of equities listed on the country’s main benchmark index, the Kospi. A unique phenomenon has emerged from this surge in demand for digital currencies: the “Kimchi Premium.”

What is the Kimchi Premium?

The “Kimchi Premium” refers to the price difference South Koreans pay for Bitcoin and other cryptocurrencies compared to the prices in other countries. This additional cost is a result of various factors, including South Korea’s strict currency controls and anti-money laundering regulations. These restrictions prevent South Koreans from transferring funds into foreign currencies to trade on international crypto exchanges. As a result, the demand for digital assets can only be met by local exchanges, driving up the prices of cryptocurrencies.

The term “Kimchi Premium” originated during the Bitcoin bull run of 2017 when the cryptocurrency reached a value of over $19,000. While the exact origin of the phrase remains unclear, it became widely used to describe the phenomenon of South Korean crypto buyers paying higher prices for Bitcoin and other coins. The term draws its name from kimchi, a beloved Korean dish, symbolizing the uniqueness of the country’s crypto market.

Crypto Arbitrage and Sam Bankman-Fried

The Kimchi Premium also inspired crypto arbitrage trading strategies, a practice that involves buying cryptocurrencies at lower prices in one market and selling them at a higher price in another. This approach brought significant attention to Sam Bankman-Fried, the now-infamous crypto entrepreneur, who built his fortune on exploiting price discrepancies between markets.

Despite the allure of the Kimchi Premium, those looking to profit from the price differences face legal risks. South Korea’s financial authorities have cracked down on activities that skirt currency regulations and anti-money laundering laws, which makes trading based on the Kimchi Premium a legal grey area.

The excitement around crypto trading in South Korea dates back to 2017, when Bitcoin’s surge in value captured the public’s imagination. The country’s central bank even issued warnings in 2018, urging its employees not to trade cryptocurrencies during work hours. Nevertheless, South Korea’s interest in digital assets remained high despite the market volatility experienced in 2022.

Currently, approximately 15% of South Korea’s population—around 7 million people—are registered on crypto exchanges. In fact, this year, the volume of cryptocurrency transactions conducted in Korean won surpassed that of the US dollar, highlighting the country’s growing role as a major player in the global crypto market.

The Kimchi Premium remains a testament to South Korea’s unique crypto culture, reflecting both the country’s enthusiasm for digital currencies and the challenges it faces with regulatory restrictions. As more South Koreans engage in the crypto market, the phenomenon will likely continue to shape the dynamics of the global cryptocurrency landscape.