Understanding the Resurgence of the Bitcoin Kimchi Premium in South Korea
The return of the Bitcoin (BTC) ‘kimchi premium’ has reignited interest in South Korea’s cryptocurrency market. As the nation contends with political disruptions, the Korean won (KRW) has weakened, prompting a rise in the price of Bitcoin.
Rising Kimchi Premium: A Reaction to Economic Uncertainty
The CEO of CryptoQuant, Ki Young Ju, notes that the KRW-USD exchange rate has plummeted to its lowest in 15 years. This decline signals a growing lack of faith among South Koreans in their national currency. Amidst this economic turmoil, South Koreans are turning to alternative investments, with Bitcoin emerging as a popular choice to protect the value of their KRW.
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In a recent post on X, Ju highlighted that South Korean cryptocurrency traders are increasingly converting KRW into Bitcoin and USD-pegged stablecoins like USDT on platforms such as Upbit. Here, Bitcoin is experiencing a premium of 3-5%. This phenomenon, known as the Bitcoin ‘kimchi premium,’ occurs when Bitcoin prices are higher on South Korean exchanges compared to international ones.
Factors Contributing to the Kimchi Premium
The kimchi premium typically emerges due to factors such as strong local demand, stringent regulatory constraints, and restricted arbitrage possibilities within South Korea’s cryptocurrency landscape. In this scenario, however, the premium is mainly fueled by the KRW’s depreciation, which is a consequence of escalating political instability in the country.
As of now, Bitcoin is priced at 145,000,000 KRW, or roughly $98,600, on South Korean exchanges, while it trades at $95,315 on global platforms like Binance. This discrepancy underscores the effect of the kimchi premium.
Analyzing the Causes of the KRW’s Weakness
The declining value of the South Korean won is largely attributed to ongoing political unrest, which gained momentum following a significant event on December 3. On that day, the former president Yoon Suk Yeol, who has since been impeached, declared martial law for a brief six-hour period before retracting the order. Subsequently, the South Korean parliament impeached Han Duck-soo, the acting president and prime minister.
These developments have sent shockwaves through global markets, diminishing confidence in South Korea’s democratic processes and raising concerns about the nation’s political future. The KRW has reached its lowest level against the USD since March 2009, as depicted in the monthly chart.
Political Turmoil and Its Broader Implications
Jeff Park, head of alpha strategies at Bitwise, highlighted in another post on X that the political unrest in South Korea revolves around accusations of election fraud and a diminishing trust in the National Election Commission (NEC). Park remarked that the use of impeachment as a political weapon, along with claims of foreign election meddling, highlights the vulnerability of democracy to misinformation. He noted that these issues are not confined to Korea alone but serve as a cautionary tale for democracies worldwide.
The political turbulence in South Korea has caused a surge in cryptocurrency trading activities, leading to unprecedented trading volumes. As of the latest update, Bitcoin trades at $95,315, reflecting a 0.2% decrease in the past 24 hours.
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