South Korea’s Kimchi Premium surged to 12% today on Jan.3, reaching its highest level in the last three year. This happened while Bitcoin prices on global exchanges dropped sharply. The sudden increase in the premium came amid a market-wide sell-off that led to over $2.2 billion in crypto liquidations within 24 hours.
Kimchi Premium is up 12% amind global crypto sell off. Source: CryptoQuant CEO Ki Young Ju on XThe Kimchi Premium refers to the price gap between Bitcoin on South Korean exchanges and other global trading platforms. When the premium rises, it means that Bitcoin is trading at a much higher price in South Korea than in other markets.
The surge in this premium suggests that Bitcoin prices in South Korea remained relatively stable, even as global markets saw a sharp downturn. This indicates that local investors were not selling their holdings at the same pace as global traders.
What Is the Kimchi Premium?
The Kimchi Premium exists because of South Korea’s strict financial regulations. The country enforces strong capital controls, making it difficult for traders to move money in and out of South Korean exchanges. Foreign investors cannot easily access these platforms, and local investors cannot freely transfer large sums of money abroad for trading.
This limited access makes arbitrage difficult. Arbitrage is a strategy where traders buy Bitcoin at a lower price on one exchange and sell it at a higher price on another. Since this process is restricted in South Korea, the price gap often remains.
Bitcoin’s Kimchi Premium Prices Remain High Despite Global Sell-Off
The recent spike in the Kimchi Premium is linked to the global financial uncertainty caused by trade tensions. Over the weekend, U.S. President Donald Trump announced new tariffs on imports from China, Canada, and Mexico. This created concerns about inflation and economic stability, leading to panic in global financial and crypto markets.
As a result, Bitcoin prices dropped by 6% within 24 hours on major global exchanges. However, South Korean exchanges saw much less selling pressure, keeping Bitcoin prices higher. This led to a wider Kimchi Premium.
Market analysts say that the premium tends to rise not only during bull markets but also during times of market panic. When global investors sell off their holdings, South Korean traders often hold their positions or buy more, which prevents Bitcoin prices from falling as sharply in the local market.
How South Korea’s Crypto Market Protects Bitcoin Prices From Falling
Several key factors make South Korea’s crypto market different from the rest of the world. One of the biggest differences is the lack of a futures market. South Korea does not allow futures or margin trading for cryptocurrencies.
On global exchanges, traders often use leverage to borrow money and trade large amounts of Bitcoin. When prices start dropping, these leveraged positions get liquidated, which causes an even bigger price drop. However, since South Korea does not have futures trading, it does not experience this forced selling.
Another major difference is that South Korea’s crypto market is dominated by retail investors rather than large institutions. In global markets, institutional investors often sell off large amounts of Bitcoin during downturns to reduce their risk. But in South Korea, retail investors tend to hold onto their assets longer and even buy more when prices fall. This limits downward pressure on prices.
Is This a Positive or Negative Sign for Bitcoin?
The Kimchi Premium has historically averaged around 5%. If global markets stabilize, experts believe that the premium will gradually return to normal levels. However, if the selling pressure in the U.S. and other major markets continues, the premium may stay elevated.
Some analysts view the rising premium as a negative sign for Bitcoin in the short term. It suggests that global market instability is making it harder for traders to move funds between different exchanges. However, others argue that the premium helps stabilize Bitcoin prices in South Korea during market crashes.
South Korea remains one of the largest crypto markets in the world. Upbit, the country’s biggest exchange, processed over $187 billion in transactions in January, making it the fourth-largest centralized exchange globally.
Upbit processed over $187 billion in transactions in January. Source: TheBlockDespite strict regulations, South Korean traders continue to play a major role in the crypto market.
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