Arbitrage trading, which is highly profitable but difficult to operate, has become popular again in South Korea, as the price of Bitcoin currently commands an average premium of 10%.
As of morning in Asia, Bitcoin was trading at just over $66,000 on most exchanges around the world. It is being traded on Korean exchanges such as Upbit for more than 93 million won, and is worth more than $71,000 at current exchange rates.
This phenomenon is the so-called “Kimchi Premium”, named after the popular Korean dish fermented cabbage, and refers to the difference in Bitcoin prices on domestic Korean exchanges compared to global stock exchanges. .
In theory trading is simple. He can buy Bitcoin on a global exchange, transfer it to a Korean exchange, and earn a 10% profit with no risk in Korean Won.
However, it is very difficult to pocket the profits from arbitrage. South Korea has strict capital controls, making it difficult for foreigners to withdraw large amounts of money from the country. This means that large funds may not be able to profit from trading and smaller investors may not have the necessary infrastructure.
Notorious examples of people who took advantage of the kimchi premium include Sam Bankman Fried, founder of the now-bankrupt trading company Alameda Research and the FTX exchange.bankman freed claimed in some interviews From 2019 to 2020, the premium was as high as 50%, which allowed his company to earn as much as $1 million a day. According to CNBC.
Meanwhile, some observers say the premium is a sign of retailer participation and is driven by significant local demand for the asset.
“Korean retail investors are coming back,” Ki Yong-joo, founder of on-chain analytics firm CryptoQuant, said in an X post. “The Korea Premium Index (also known as Kimchi Premium) is a pure retail FOMO indicator.”
Bradley Park, head of research at CryptoQuant, told CoinDesk in a Telegram message that some traders are likely taking advantage of the trade.
“As the kimchi premium increases, traders will take advantage of the arb opportunity to bring back their overseas holdings. This means Upbit’s Bitcoin reserves will increase,” Park said. . “At the end of February, it was confirmed that (reserves) had increased significantly.”
Bitcoin price has not changed in the past 24 hours. CoinDesk 20, a broad-based liquidity index, rose 5.32%.
