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Kimchi Premium

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What is Kimchi Premium?

Kimchi premium is the deviation in crypto asset prices between south korean exchanges and foreign exchanges. Seen by and large in bitcoin BitcoinBitcoin is the harbinger of the cryptocurrency market. Operating on blockchain technology, Bitcoin is set to disrupt the currentness market. Invented in 2008, prices are perceptibly higher in South Korea compared to other western and asian nations.

Reading: Kimchi Premium

The visible remainder in south korean bitcoin prices stimulated an inflow in crypto trade. The price remainder motivated cryptocurrency traders to purchase big amounts of bitcoin from their own market and sell it back on the korean market to gain a profit. The phenomenon is referred to as “ arbitrage trade ArbitrageArbitrage is the strategy of taking advantage of price differences in unlike markets for the same asset. For it to take place, there must be a situation of at least two equivalent assets with differing prices. In effect, arbitrage is a situation that a trader can profit from. ”

Summary

Kimchi premium is the cryptocurrency price differential between South Korean exchanges and foreign exchanges.
Cryptocurrency traders quickly took advantage of the kimchi premium.
Since 2017, the kimchi premium’s steadily increased, reaching as high as 50%.

History of the Kimchi Premium

During the beginning of 2017, there was no noticeable difference in the price of bitcoin between South Korea and other Western/Asian nations.
The difference in price did not become noticeable until the end of 2017, when the gap in bitcoin prices (kimchi premium) soared up to 30%.
The kimchi premium continued to grow in early 2018 when the price differential reached above 50%. It is speculated to be caused by a lack of other high-return investment opportunities in South Korea.
The kimchi premium’s also been linked to the country’s interest in technology and online gambling.

Kimchi Premium Example

As stated, the kimchi premium is the price derived function of cryptocurrency between confederacy korean and other Western/Asian nations. But how is it mathematically represented ? For model : If the price of 1 bitcoin in the United States was $ 10,000 and the price of bitcoin in South Korea was $ 18,000, the kimchi premium will be 80 %. It means that you can purchase bitcoin on the U.S. market and sell it on the korean market for an 80 % profit. In such a case, buying 1 bitcoin can result in an $ 8,000 net income if it was sold on the south korean market. Buying 10 bitcoins will result in an $ 80,000 profit .

What is Bitcoin and Arbitrage Trading?

Bitcoin

Bitcoin is a human body of digital currency. Generated by computational solutions, it is widely democratic due to its eminent change rate. In 2020, 1 bitcoin is estimated to be deserving approximately 10,000 USD .

Arbitrage Trading

arbitrage trade is a strategy that is used to take advantage of differences in market prices Market PriceThe term market price refers to the amount of money for what an asset can be sold in a market. The market price of a given dear is a point of convergence. As mention, cryptocurrency traders took advantage of the kimchi premium by purchasing their own market ’ s bitcoin to then sell it on the korean market for a profit. The arbitrage trading phenomenon is generally ephemeral since investors take advantage of the price differential to the point that the opportunity is no longer profitable .

Restrictions Regarding Kimchi Premium

Investors were alone able to take advantage of the price gap for a short period of clock time. such type of cryptocurrency trade became about impossible in South Korea due to a variety show of different reasons.

1. Domestic restrictive policies

Koreans are required to follow regulative policies and must have oversea remittance to buy cryptocurrency on the extraneous exchange. besides, the legal status of south korean cryptocurrency is obscure. The south korean politics has not yet decided if cryptocurrency is a “ fiscal currency ” or a “ good. ” In the character of fiscal currentness, cryptocurrency will be subject to the “ Foreign Exchange Transactions Act. ” It will mean that people who want to import cryptocurrency will need to first declare it to the South Korean bank. It is not wholly regulated, though. In the font of goods, cryptocurrency will be subjugate to the “ Foreign Trade Act ” and “ Customs Law. ” It will must be reported as imports and exports to customs .

2. Anti-money laundering laws

There are a kind of anti-money launder Anti-Money LaunderingAnti-Money launder ( AML ) is a set of policies, procedures, and technologies that prevents money wash and proctor potential deceitful bodily process. laws in South Korea to prevent the central and trade of illegally obtained cryptocurrency .

3. Foreign investment policies

South Korea prohibits all non-domestic traders from doing business on confederacy korean exchanges. The restriction ’ mho caused cryptocurrency trade from China and Japan ( to South Korea ) to drop significantly. The foreign investment policies enacted by South Korea prevents cryptocurrencies from being exchanged on the world market ; they must remain domestic .

4. Transaction complexity

The complexity in taking advantage of the kimchi premium besides discourages investors from engaging in the practice. It is because the investor will be required to open a newly bank account barely for alien central. It is generally considered less complex to hold onto the cryptocurrency until the domestic price increases quite than going through the struggle of a drawn-out transaction process .