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Exploring the Korean Bitcoin “Kimchi Premium”

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Korean Kimchi Premium

If you have been trading Bitcoin for over a year, you will no doubt have heard of a weird market phenomenon called the “Kimchi premium”.

This is essentially the premium that Korean traders will pay over the international price of Bitcoin.

More specifically, it is the difference between the USD equivalent of the KRW price of Bitcoin vs. the USD price of Bitcoin on an international exchange.

This premium has varied anywhere from a few percent to over 20% in periods of severe market volatility. This opens up a whole host of questions around potential “arbitrage trades” between the markets.

So, can you take advantage of the Kimchi premium? Do other local market premiums exist?

In this post, we will give you everything you need to know about the Kimchi premium as well as the potential to trade it.

Kimchi Premium Example

Before we can take examine the implications of the Kimchi premium, it helps to take a look at a practical example of it in the markets today.

At the time of this post, the price of Bitcoin on an international exchange such as the Binance exchange is currently sitting at $6,618. However, if we take a look at the price of Bitcoin on a South Korean exchange such as Bithump, it is currently 7,540,000 KRW.

The current exchange rate between the Korean Won and the USD is about 1,100 KRW/USD. This means that the price of Bitcoin on an exchange like Bithump converted into USD is $6,854. This is about a 3.5% premium over the price of Bitcoin on Binance.

While this is far from the 20% premium that we have seen in the past, a 3.5% risk free profit would entice many traders who trade arbitrage. Yet, there are a number of factors that you need to take into account before you can consider attempting to arbitrage this market.

Triangular Kimchi Arbitrage

If a trader wanted to take advantage of this Kimchi premium, then they would have to buy Bitcoin in USD, send the coins to a South Korean exchange, sell them for Korean Won and then convert them into USD. Below is an example of the triangular arbitrage nature of the trade.

Triangular Arbitrage Example with Binance and Bithump

This is a simple example of how it will work. However, there are a few things that you should consider that could reduce the potential gains. These are fees, both on the exchange side as well as the fiat banking side. There is also the added scrutiny that comes from fiat currency exchange controls.

In terms of fees, there is likely to be a Bitcoin network fee as well as a withdrawal fee from Bithump. Then, when you try to send the funds abroad, you are likely to encounter more fees on the purchase of USD (rate above is spot) as well as international wiring fees.

When all of these fees are added up, it is likely that the Kimchi premium will be greatly reduced.

Another really important consideration is the requirements in order to obtain an exchange account and bank account in South Korea. There is no doubt that they will want to see proof of residency for the applicant.

So, unless you happen to have access to both a South Korean trading and Bank account, then you may find it difficult to ever place an arbitrage trade on the Kimchi premium.

However, I have observed similar market premiums on a number of other local currency exchanges in the past. I have seen premiums between the USD and the EUR, AUD, CAD, JPY and ZAR prices on these exchanges.

All that is required is you to observe the USD equivalent of the different currency prices for Bitcoin on Coinmarketcap. Interestingly enough, the South Korean exchanges have actually been removed from these calculations given the pricing distortion they had on prices in the past.

In order for you to make the most of these local market premiums, you have to understand why they are present.

Why Do they Exist?

Arbitrage opportunities exist in the Bitcoin markets because of the varying degrees of local supply / demand vs the demand on international markets. There could be specific reasons that an individual country has such high demand for Bitcoin

In the case of Kimchi premium, it is well known that South Korean users are much more bullish than their counterparts in other countries. This excessive demand will drive up the price of Bitcoin in Korean Won.

Taking a look at a more extreme example, you have the case of Zimbabwe.

Prices for Bitcoin in Zimbabwe have exceeded the international price by over 60% in the past. Bitcoin is so highly prized in Zimbabwe because of the hyper inflation that is currently gripping the country. The same can be said for other countries such as Venezuela or Argentina currently.

A 100 Trillian Bank Note in Zimbabwe. Source: citeco.fr

These premiums also exist because they are hard to take advantage of. For example, it would be very hard to use any traditional banking in countries such as Zimbabwe or Venezuela to take advantage of the premium. Who would trust their fiat money in a country where the inflation rate tops 100,000%?

There are also a number of countries that have exchange control limits on their citizens. On the individual level, these are likely to be quite low which means that eventually you will be stopped from converting your local currency for USD.

In the more secure western countries, the premium may still exist merely because there is not enough money pursuing the trade. This is the more favourable position to be in and it means that you as an individual have a slight advantage over larger hedge funds and institutional money managers.

These established markets with developed banking infrastructure are the most likely place for you to try and take advantage of these opportunities.

Conclusion

While markets have fallen considerably over the past few months, so has the Kimchi premium. This is probably as a result of South Korean trader’s lack of appetite for Bitcoin currently.

However, this is likely to turn the moment that the next Bitcoin bull market rolls in. South Korean traders will feel a great sense of FOMO and the local demand for Bitcoin is likely to increase.

As the Bitcoin markets are still relatively unexplored by large financial institutions, pricing inefficiencies are likely to remain along with the Kimchi premium.

Featured Image via Fotolia

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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5 stars on average, based on 9 rated postsNic is an ex Investment Banker and current crypto enthusiast. When he is not sitting behind six screens trading Bitcoin, he is maintaining his numerous mining rigs.




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2 Comments

2 Comments

  1. Daniel Won

    September 26, 2018 at 8:34 pm

    Premium still exists in some cases and sometimes even more than 20%. Try 10x / 1000% instead (Augur was trading for this premium on Bithumb ~a few weeks ago, might still be)

    However, in the above example, Bithumb blocked deposits on all coins/tokens with insane arbitrage opportunities like that

    Though for the determined individual, I’m sure there’s a way to figure it out

    “Where there’s a will, there’s a way”

    • Nic Puckrin

      September 27, 2018 at 4:29 am

      Wow, a premium that high!

      The problem is that even if you are to make a profit for a few trades, there is a $50k individual limit on sending funds out if I believe. So you can’t make your fiat profit.

      Either way though, a few grand for a “risk-free” trade is juicy 🙂

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Bitcoin

Bitcoin Price Scrapes the Barrel While Stellar (XLM) Losses Fall in Line

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Bitcoin returned to its lowest valuation of the year on Friday, as the last week of cautious upward movement by the crypto market came to a crashing halt.

Just last week BTC fell to a dollar valuation in the high $3,200 range – a fifteen-month low at the time. After seven days of false hope and another rinsing of weak hands, BTC returned to the same valuation early on Friday morning – a sign that $3,000 is destined to act as a baseline in the short-term?

Meanwhile, after months of positive developments and upward momentum, Stellar (XLM) is finally feeling the pinch and may be about to fall back in line with average market losses. XLM’s valuation is down over 18% for the week, and 7.5% for Dec 14th alone – leaving Tether (USDT) waiting in the wings to take over XLM’s 4th spot ranking by market cap.

Bitcoin Price – BTC/USD

Bitcoin fell 4.75% leading into Friday morning, compounding 10% losses over the last five days. From the daily high of $3,448, BTC found itself trading as low as $3,200 on some exchanges, while the aggregate valuation drawn from all exchanges remains closer to $3,300 at time of writing.

Bitcoin volume remains high while overall trade volume has declined. This has sent BTC dominance to over 55% again, and may be the beginning of a trend which sees altcoin gains continually cashed out to the more trusted BTC (via USDT) for the duration of the bear market.

Stellar Price – XLM/USD

A portion of those gains may now be coming from the Stellar market, which is being dominated by USDT and BTC trades as of Friday.

From the daily peak of $0.111740, XLM’s valuation fell to £0.103288 by noon Friday. That’s a 7.5% decline for the day, and comes on top of 18.3% losses over seven days as Stellar finally seems to be falling in line.

Stellar had kept the bears at bay for much of the prolonged market dip in the last few months, even rising in the rankings to become the 4th highest capped cryptocurrency. Fuelled by prominent announcements and almost constant speculation regarding a Coinbase listing, XLM managed to buck the trend and hold onto its value while all around it were losing theirs.

Now, this latest dip has singled out XLM specifically, leaving the coin’s losses firmly in line with ETH and the major alts’ +60% losses since mid-November. Once valued at nearly $17 billion by market cap at its peak, Stellar is now valued at less than $2 billion, and only the slightest fluctuation by ‘stable’ coin, Tether, would drop XLM out of the top four ranked cryptos.’

Disclaimer: The author owns bitcoin, Ethereum and other cryptocurrencies. He holds investment positions in the coins, but does not engage in short-term or day-trading.

Featured image courtesy of Shutterstock.

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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4.5 stars on average, based on 104 rated postsGreg Thomson is a full-time crypto writer and digital nomad. He eats ICOs for breakfast and bleeds altcoins. Wherever he lays his public key is his home.




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Analysis

Crypto Update: Majors Testing Lows Following Broad Selloff

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The major cryptocurrencies have been once again under pressure in the past 24 hours and most of the coins got very close to their recent lows, even as the losses are limited for now. While the top coins avoided a breakdown, given the overwhelmingly bearish long-term picture and the steep short-term trend, odds continue to favor new lows in the coming weeks, so traders and investors should still remain defensive.

Dash/USD, 4-Hour Chart Analysis

The continued technical weakness in the lagging coins, like Dash, and the lack of a relatively strong leadership is still apparent, and it reinforces the bearish overall picture. That is true even as the long-term momentum indicators are showing deeply oversold readings and investors sentiment remains very negative which could lead to a larger scale correction after a short-term trend change. That said, traders shouldn’t enter new positions here until we see meaningful short-term technical improvements.

BTC/USD, 4-Hour Chart Analysis

Bitcoin failed to regain momentum despite the weekend bounce and the coin is back near its recent low trading near the $3250 level today. The key $3600 level is out of reach for the most valuable coin, and with that in mind, our trend model remains on clear short- and long-term sell signals.

The current weakness of BTC is a negative sign for the whole segment, and a test of the key long-term $3000 level is more and more likely. Further string resistance is ahead between $4000 and $4050, and traders and investors shouldn’t enter positions here.

ETH/USD, 4-Hour Chart Analysis

Ethereum has been trading in a very narrow range in recent days, and the coin is still stuck below the key $95-$100 zone, as it failed to show relative strength despite being among the most oversold majors. ETH also faces strong resistance near $120 and $120, with the next major support zone found between $73 and $75, and traders and investors should still stay away from the coin.

Litecoin Breaking Down Again?

LTC/USD, 4-Hour Chart Analysis

Litecoin is threatening with another break below support today, with the $23 support level looking very weak now, and the steep short-term downtrend remains clearly intact in the coin. LTC continues to be relatively weak from a short-term standpoint, and traders shouldn’t consider even ultra-short term positions here, despite the deeply oversold broader picture.

The next major support zone is found between $20 and $20.50 and odds favor a test of that zone as soon as in the coming days, with strong resistance found near $26 and $30.

XRP/USDT, 4-Hour Chart Analysis

Ripple continues to hover around the $0.30 level, still being very weak on the short-term time-frame, and being on sell singles both short- and long-term in our trend model. XRP faces strong resistance near $0.32, $0.3550, and $0.3750, while primary support is found at $0.28, with the prior bear market low being at $0.26. We expect at least a test of the lows in the coming weeks, despite the still relatively strong long-term technical setup and new low bear market lows are also likely in Ripple.

Featured image from Shutterstock

Disclaimer:  The analyst owns cryptocurrencies. He holds investment positions in the coins, but doesn’t engage in short-term or day-trading, nor does he hold short positions on any of the coins.

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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4.7 stars on average, based on 416 rated postsTrader and financial analyst, with 10 years of experience in the field. An expert in technical analysis and risk management, but also an avid practitioner of value investment and passive strategies, with a passion towards anything that is connected to the market.




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Altcoins

Monero Price Analysis: Wider Adoption Seen as Bity Adds XMR Support to Their ATM Network

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  • Swiss-based cryptocurrency organization, Bity, has added their support for XMR for use at ATM terminals.
  • XMR/USD trading up on Friday, with gains of over 3% at the time of writing. Despite this, weekly chart view still points to the downside.

XMR/USD is trading in positive territory on Friday, having gained over 3% during the session. This leaves some optimism heading into the weekend, which is normally characterized by lower trading volumes. Trading over the past eight sessions now has been very much choppy, signaling a lack of direction in the underlying market. Any short-term bull runs observed have quickly been sold by the bears, consistently.  The price is trading around the lowest levels since August 2017 and is down over 90% from the start of 2018. Despite the minor relief upside Friday, there still appears to be room for downside in the short term. Once again, price action is largely dictated by technical factors as opposed to fundamental.

Wider XMR Adoption Following Bity Support

Bitly, a Swiss-based cryptocurrency organization, has announced their support for Monero (XMR). They are a cryptocurrency exchange, in addition to operating a network of cryptocurrency ATMs. Their users can instantly and securely transact bitcoin in addition to buying ETH and now XMR with Swiss Francs and Euro. This can be done at physical terminals in Switzerland. Bitly has additional kiosks in Zurich, Zug, Winterthur, Basel, and Lausanne. They note that more locations and additional token support are coming soon.

Technical Review – XMR/USD

XMR/USD 4-hour chart

Price action over the past seven sessions now has been forming a range-block, moving within consolidation mode. This has come after some stabilization, following the chunky sell-off from November through to early December. The current price behavior can also be perceived when looking technically, as a potential bearish flag pattern formation. If playing out to the textbook, another extended move to the downside will be seen.

Downside Targets

XMR/USD weekly chart

The near-term bottom can be eyed at $41.00, which is the floor of the most recent range. A failure of this holding will likely see another wave of selling pressure. Looking further to the downside, the next eyed support is seen at $38.45, which was a key weekly level in July 2017. Lastly, any breach here would invite a drop below the $30.00 mark toward the weekly support at $29.00. This would be the lowest level hit since July 2017, when XMR/USD was in the early stages of the big bull run.

Disclaimer: The author owns bitcoin, Ethereum and other cryptocurrencies. He holds investment positions in the coins, but does not engage in short-term or day-trading.

Featured image courtesy of Shutterstock.

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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4.5 stars on average, based on 84 rated postsKen has over 8 years exposure to the financial markets. During a large part of his career, he worked as an analyst, covering a variety of asset classes; forex, fixed income, commodities, equities and cryptocurrencies. Ken has gone on to become a regular contributor across several large news and analysis outlets.




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