How Asian crypto traders leverage the ‘Kimchi Premium’
The price of Bitcoin is often substantially higher in South Korea than elsewhere, which is leading many investors to turn to arbitrage trading
Aside from the futures markets, it is difficult to go short on crypto-currencies. Big gains are made in bull markets and panic selling occurs when the bears have control, such as at the moment.
There is, however, another way of leveraging a profit out of crypto markets and Asian traders have found this in arbitrage trading.
The price of Bitcoin or a different crypto-currency varies between different countries depending on the demand. In what has become known as the ‘Kimchi Premium’ the price of Bitcoin is often substantially higher in South Korea than in other countries. Investors and traders can target this by trading across borders with the same digital asset.
According to the Nikkei Asian Review, the Kimchi Premium reached 30% during the crypto boom in January this year. Bitcoin topped out at about 2 million Yen in Japan, but was priced at 2.6 million in South Korea. Traders quickly figured out that prices would jump significantly just by sending the digital currency from an exchange in one country to one in another.
This practice of arbitrage does not get impacted by market fluctuations but by price differences between countries. Things have settled down since the January crypto spike and markets have been down trending for several months. According to the report, the geographical price discrepancies between Asian nations still exists. The value of Bitcoin across six Japanese digital currency exchanges varied by as much as 1,600 yen in May, it stated.
At the start of Monday in Asia, the price of a Bitcoin on Korea’s largest exchange, Bithumb, was $7,035, and on Japan’s bitFlyer it was JPY758,730, or $6,917, whereas analytics website coinmarketcap.com reported the price as being $6,816.
On Coinbase, America’s largest exchange, the price was $6,789 and on Hong Kong’s Binance you could buy one for $6,771 using the Tether stablecoin which is pegged one to one with the US dollar. Bitcoin was 224,900 THB ($7,020) on the BX Thailand exchange, and on Singapore’s CoinHako a Bitcoin was $6,876. India had the most expensive rate at the moment with Unocoin’s 487,867 INR ($7,154) per BTC.
There are also price discrepancies between exchanges in the same country due to differing fees and trade commissions. Exchange rates can also come into play if traders are selling to Fiat currency.
Japan’s Financial Services Agency has been critical of digital currencies in this regard, citing the ability to speculate with a large amount of leverage.
According to Bank of Japan Governor Haruhiko Kuroda, “cryptocurrencies aren’t legal tenders and don’t have assets to back up their value, and their use for remittances and payments is small.”
Japan’s lawmakers are now debating whether this form of arbitrage and leverage trading needs further regulation.
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