Did Kimchi Premium Drop Cause Bitcoin Dip?

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  • Bitcoin’s drop yesterday has been attributed in part to a huge drop in the kimchi premium
  • The premium fell 13% in a matter of hours, suggesting someone may have finally been able to arbitrage it
  • A temporary halt in Bitcoin deposits and withdrawals may have also been behind the drop

The kimchi premium was said to have been instrumental in a fall in the Bitcoin price yesterday, with suggestions that someone may have found a way to arbitrage the premium. There is an alternative explanation however which lays the blame at the foot of South Korean exchange Upbit who temporarily froze Bitcoin deposits and withdrawals. But just what is the kimchi premium and what impact does it have on the markets?

What is the Kimchi Premium?

The kimchi premium, named after a popular Korean cabbage dish, refers to the gap in cryptocurrency prices on South Korean exchanges compared to other global exchanges. Primarily impacting Bitcoin prices, it is essentially a premium that South Korean buyers have to pay to buy Bitcoin in their own country compared to exchanges located in the United States or Europe.

Strict regulations prevent South Korean cryptocurrency traders from carrying out activities on platforms other than those located in their own country, so traditionally they have little choice but to buy and sell with the premium. The kimchi premium is thought to have first appeared in 2016 and usually occurs at times of peak Bitcoin popularity – indeed, some use it as a signal that the Bitcoin market is close to topping out.

Arbitrage or Exchange Suspension?

Historically it hasn’t been possible to take advantage of the premium by arbitraging it, but it seems that this may no longer be the case after it dropped from 23% to 9% in a matter of hours yesterday:

kimchi premium

Initial thoughts were that someone had managed to arbitrage the kimchi premium, with other evidence such as huge inflows to Korea’s biggest exchange, Bithumb, massively increasing at the same time:

However, others suggested that an emergency halting of Bitcoin withdrawals and deposits was behind the sudden drop:

This is a more likely explanation that someone suddenly being able to arbitrage the kimchi premium after all these years, especially as the premium has since recovered. Nevertheless, it will be interesting to see how it reacts in the coming days and weeks, especially if Bitcoin finally cracks the $60,000 barrier.