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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 10 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. Twitter: @nicrypto




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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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Altcoins

Bitcoin Cash Price Analysis: Bullish Pennant Pattern Confirmed

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  • Bitcoin Cash price remains very much elevated, as the bulls continue to run north.
  • BCH/USD price action has formed a bullish pennant pattern formation, subject to a breakout higher.

BCH/USD: Recent Price Behavior

The Bitcoin Cash price has been a notable out-performer over the past few sessions, with the BCH/USD pair rallying as much as 23% since 17th February. In doing so, it reached its highest levels in over six weeks. The aggressive move north came after a prolonged period of range-bound trading via the daily chart view.

Between 8th – 17th February, BCH/USD was moving within an extremely narrowing range-block formation. This represented a lack of commitment from both camps after being confined within a range low of $117 to a high around $125. On 18th February, the bulls managed to force a breach and daily closure above the confines of the mentioned range.

Coinbase Adds Bitcoin Cash Support to Wallet App

Coinbase, a U.S.-based cryptocurrency exchange and wallet service provider, announced it has added support of BCH to its Coinbase Wallet.

“The new Wallet update with Bitcoin Cash support will roll out to all users on iOS and Android over the next few weeks,” the company said in an official blog post.

The app will facilitate support for both CashAddr and legacy addresses. Private keys will be encrypted on the mobile device by the Coinbase mobile wallet. Last week Coinbase announced the following: “users can now back up an encrypted version of your Coinbase Wallet’s private keys to your personal cloud storage accounts, using either Google Drive or iCloud This new feature provides a safeguard for users, helping them avoid losing their funds if they lose their device or misplace their private keys.”

Technical Review – BCH/USD

BCH/USD 4-hour chart.

At the time of writing, the BCH/USD price is still holding at elevated levels, with gains in the session amounting to 2.5%. Over the last two sessions, between 19-20th February, the price action has somewhat moved within a range. The detailed price behavior has seen a bullish pennant pattern formation, which is subject to a further potential move north.

Near-term resistance is eyed at $145.50, where the upper acting trend line of the pennant is tracking. Should the bulls manage to break this down, then expect a fresh wave of selling pressure to kick in. To the upside, eyes will then be on supply observed up within the $160-$165 price range.

In terms of near-term support, the lower acting trend line of the pennant which is tracking at $140 is the next major target; a breach could then expose critical daily support at $137. Lastly, if neither safety nets protect the price from falling, then there runs the risk of a full reversal of the recent gains.

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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4.6 stars on average, based on 125 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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Analysis

Crypto Update: Coins Test Swing Highs Litecoin Runs Into Resistance

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The major cryptocurrencies continue to trade with a bullish bias after establishing a new short-term uptrend this week. The top coins are all holding on to the bulk of their recent gains, even as most of them entered consolidation patterns on the heels of the strong rally in the segment. With still only Ripple lagging the broader market notably, the immediate outlook remains positive, despite the still bearish long-term picture.

LTC/USD, 4-Hour Chart Analysis

Today, the initially leading Litecoin shined again, pushing past the $50 level and hitting the long-term resistance zone near $51. As LTC is overbought due to its recent lofty gains, the coin is now only on a neutral short-term signal in our trend model, since the bearish long-term setup continues to warrant caution for bulls here.

That said, the rising short-term trend is intact, and should the coin clear the overbought momentum readings, traders could enter small, speculative positions using strict risk management rules. Support levels are now found near $47, $44, and $38, while the next major resistance zone is ahead near the $56 price level.

BTC/USD, 4-Hour Chart Analysis

Bitcoin entered a consolidation pattern today, as we expected, after touching the longer-term zone resistance zone between $4000 and $4050. The momentum indicators hint on further consolidation, and in light of hostile long-term setup, traders should wait for the overbought readings to be cleared before entering new short-term positions.

Below the initial level $3850 support, further levels are found near $3600 and just above $3450, while the next resistance zone above $4050 is ahead near $4450. The short-term uptrend is intact in BTC, and our trend model remains on a short-term buy signal.

Ethereum Tries to Form Swing Low while Ripple Fights Trendline

ETH/USD, 4-Hour Chart Analysis

Ethereum entered a shallow correction after hitting the resistance zone near $145, but the price action and the volume patterns continue to support the bullish short-term case. The $160 price level remains a viable target for bulls but the momentum indicators continue to show overbought readings. The short-term uptrend is intact and our trend model is still on a short-term buy signal as well. Support levels are found near $130 and $112 while above $160 resistance is ahead near $180.

EOS/USD, 4-Hour Chart Analysis

Only a few of the major altcoins managed to follow Litecoin to a new swing high today, but EOS slightly extended its rally, despite being severely overbought from a short-term perspective. While the new high is a positive sign for the coming period, EOS remains only neutral in our trend model, and traders should wait for the oversold readings to be cleared before entering new positions.

XRP/USDT, 4-Hour Chart Analysis

While the leadership of the rally is still healthy, Ripple continues to lag the leaders, still fighting with the declining trendline that stopped the recent rally attempt in the coin. XRP is holding up above the $0.32 level, but it’s stuck below the recent swing high, and traders should still focus on the relatively stronger coins despite the short-term buy signal in our trend model.

From a long-term perspective, technicals remain negative, and a move towards the $0.28 and $0.26 levels remains likely. Further support zones are found near $0.32 and $0.30, while short-term targets are still ahead near $0.3550, and $$0.3750.

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 468 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

Litecoin, EOS, Binance Coin, Maker: Altcoins Leading the Charge

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Crypto valuations experienced a slight pullback Wednesday, though a small contingency of altcoins continued to see impressive gains, a sign that the latest uptrend still had room to mobilize.

Crypto Market Update

Most of the top 20 cryptocurrencies reported losses overnight, raising the specter of a ‘bull trap’ following the latest recovery attempt. The downside risk has since moderated, with a small handful of altcoins reporting gains.

EOS (EOS) gained 4.4% to $3.80, extending an early-week rally that pushed prices to nearly three-month highs. The Enterprise Operating System is up more than 30% since Sunday.

The Litecoin (LTC) price crossed $51.00 for the first time since mid-November, gaining 4.8% in the process. The cryptocurrency has gained a whopping 80% over the past two weeks, which helped to engineer a market-wide rally. Read more: Litecoin Sparks Huge Crypto Rally as Bitcoin Smashes Through $3,700.

Litecoin is benefitting from adoption progress after SpendApp announced it will begin supporting the cryptocurrency at more than 40 million locations. Combined with the anticipated ‘halving’ event in August, Litecoin continues to attract strong bids.

Meanwhile, the meteoric rise of Binance Coin (BNB) continued on Wednesday. The price surged 11% to $10.94, the highest since last August. Binance Coin is benefiting from positive publicity tied to its underlying exchange, including the launch of a new token sale platform.

Maker (MKR), which is comprised of a stablecoin, collateral loans and a decentralized governance framework, rounded out the big gainers on Wednesday. MKR jumped 10.4% to $652.10, placing it in 16th in terms of market cap.

Want an introduction to MKR? Read: What’s Driving Maker (MKR)? High-Priced Coin Outshines Peers.

The combined cryptocurrency market cap is currently valued at $134.8 billion, up from an earlier low of $132.3 billion.

Does the Rally Have Legs?

While appearing sudden, the crypto rally that began on Sunday was actually weeks and perhaps even months in the making. As Hacked predicted before the rally, the sharp rise in coin circulation and overall trading volume, combined with the relative decline in volatility, pointed to higher prices in the near term.

On Tuesday, bitcoin’s 24-hour trading volume topped $10 billion for the first time in ten months. Market-wide volumes spiked above $36 billion, levels not seen since last May. And that’s just what digital exchanges are reporting.

Anyone still doubting whether institutional traders are accessing crypto should pay close attention to private bilateral contracts. This private market has scaled up to between $125 million and $500 million per month in the last half year, according to Bloomberg. Recent activity shows that traders have zeroed in on the $4,200 price target, and some are betting large sums that bitcoin can top this level by the spring.

Bitcoin is currently trading just above $4,000 on Bitfinex. While its share of the overall market has declined over the past 48 hours, it is by far the biggest bellwether for cryptocurrencies. Where bitcoin goes, the market follows.

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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4.7 stars on average, based on 773 rated postsChief Editor to Hacked.com and Contributor to CCN.com, Sam Bourgi has spent the past nine years focused on economics, markets and cryptocurrencies. His work has been featured in and cited by some of the world's leading newscasts, including Barron's, CBOE and Forbes. Avid crypto watchers and those with a libertarian persuasion can follow him on twitter at @hsbourgi




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