Bitcoin prices have plunged to $31,753. So, where are prices headed from here? One of the indicators to know about the trajectory of Bitcoin prices is the Kimchi premium, which is the difference between the price of bitcoin on South Korean exchanges and the international prices. The Kimchi premium was around 50% when Bitcoin was around its all-time-high. Later, it dropped to 25% in April, and now the difference has fallen sharply to about 3%, suggesting lower demand in South Korea, which is an influential market for Bitcoin pricing. Money9 spoke to Nischal Shetty, founder and CEO, WazirX, to know the latest development means for crypto globally.
“Kimchi premium was first mentioned in 2016 when Bitcoin prices in South Korea were found to be higher than international prices. For example, if Bitcoin was Rs100 in the international market, it was trading at Rs 120 in South Korea. It is important because it is an indicator of Bitcoin prices. If the premium is higher, it indicates the bull market and when it is less, it hints towards the bear market. So it indicates the prices,” he told Money9.
“If we compare Bitcoin prices in the last few months, then prices have come down. Bitcoin search is also lower than the last 7 months, which is an indicator that buyers have come down, and that’s why South Korea premium has come down, indicating a slowdown. But again, Kimchi is not the only indicator as prices can move even overnight,” Shetty said.
So, what is the rationale behind Kimchi premium?
“South Korea market is very evolved, matured and the bigger market. That’s why the world watches it. Prices differ because of capital control, which means you cannot buy Bitcoin easily from the outside. Also, because these are comparatively new markets, many new buyers come up quickly, and sellers do not get the time to meet the demand. Because of this time difference, the prices go up.
“Absolutely, premium is a big opportunity for arbitrage trading. But arbitrage is not easy, and that’s why premium exists. One of the easy ways to do arbitrage is through exchanges. Traders buy from one exchange and sell it to another exchange where the rate is higher. People used to do it manually, but now automation has come. Manually it is challenging,” said Shetty.
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