A new study published in December 2022 shows that South Korea’s “kimchi premium”, the difference in cryptocurrency valuations on Korean exchanges compared to Western trading platforms, is strongly associated with the increase in international remittances to China.
An audit of overseas remittances to China revealed a strong link to South Korea’s ‘Kimchi Premium’
According to a study by Jangyoun Lee, an associate professor at Incheon National University, and Taehee Oh of the Bank of Korea, South Korea’s kimchi premium is significantly associated with the flow of overseas remittances to China. The researchers note that the first example of a kimchi bounty in South Korea occurred in 2016, when there was high demand for Bitcoin among Korean investors but a limited supply of BTC. In fact, the kimchi premium means that the price of bitcoin and other crypto-assets is much higher in South Korea than in Western exchanges.
The team analyzed financial data on overseas remittances to China from approximately 1,211 foreign exchange businesses from January 2016 to May 2021, the researchers detailed. is close to 55% without decrease. However, the kimchi bounty re-emerged in the first quarter of 2021, and the authors of the study noted that on May 19, 2021, the bounty increased by more than 20% from the price on Western cryptocurrency trading platforms. The authors of the research paper add:
Our findings show that Chinese arbitrageurs use Korean financial institutions as bitcoin cashing points, converting virtual currencies into fiat currencies when the kimchi premium is persistently high.
The authors of the study suggest that a significant part of the awards and the increase in foreign arbitrations are related to the events in China. For example, the paper details that while China has banned cryptocurrencies, countries like South Korea and the US have decided to regulate the industry. “Therefore, Chinese arbitrageurs could only cash out their cryptocurrencies outside the country,” according to the makers of the “kimchi premium” research paper.
“This paper shows that the kimchi premium is positively associated with the increase in remittances to China after controlling for important factors that directly affect it, such as stocks, bonds, foreign exchange, and the real economy,” the paper’s authors claim. . The authors further argue that the findings show the complexity of the global cryptocurrency market and that international standards and common regulations are needed to protect investors. The newspaper insists that South Korea has been “targeted by cryptocurrency arbitrage traders exploiting excess demand.”
South Korea Bitcoin Premiums in 2023
The Kimchi bounty continues today, and at 9:00 PM ET on January 9, 2023, the price of Bitcoin (BTC) on Upbit and Bithumb, two of South Korea’s top cryptocurrency exchanges, is between $17,427 and $17,437 per unit. did. . However, at the same time, using the global average on coinmarketcap.com, the price of BTC on Western exchanges was $17,205 per coin. This means that arbitrage traders exchanging BTC can get a premium of about 1.35% on South Korean exchanges, and there is also a difference in ethereum (ETH) prices on Western exchanges compared to their value on South Korean exchanges.
High premiums for BTC have also occurred from time to time on the Japanese cryptocurrency exchange market. Countries such as Thailand, Hong Kong, Brazil, Malaysia, the Philippines and Chile have further seen bitcoin bounties. Additionally, before private trading was banned on the Localbitcoins trading platform, arbitrage opportunities were readily available. Although the trend is decreasing depending on the country and the liquidity of bitcoin in the region, foreign arbitrageurs can still profit from exchanging money between the two locations.
What do you think about the investigation into South Korea’s kimchi bounties and the findings that show they are linked to Chinese money transfers? Let us know what you think about this topic in the comments section below.
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