Bitcoin Trades Above $70k in South Korea: Kimchi Premium Explained

Looked at in a certain light, the kimchi premium could serve as a glimpse into the world of central bankers unified to deplatform opposing financial systems. Such oddities spawn out of an imbalance between different regulatory frameworks. What if all were leveraged against cryptocurrencies?

What Bitcoin’s Near Future May Resemble, Courtesy of South Korea

If you live in the Western or Northern hemisphere, you are likely eagerly anticipating Bitcoin to surpass $60k and create an even higher bottom. However, Bitcoin over $60k has been a reality in other nations, providing lucrative but complicated arbitrage opportunities. It turns out, a combination of factors can greatly skew Bitcoin prices between the world’s exchanges:

• Strict capital control causing fiat deposits on local exchanges to favor sellers.
• Bureaucratic red tape and taxes making fiat conversions and remittances difficult.

In South Korea, this imbalance against other exchanges has become so common that Bitcoin premiums of up to 30% have been dubbed as “kimchi premium”. Named after the staple of South Korean cuisine made out of fermented vegetables, kimchi premium shows a price spread between local and global crypto exchanges.

Due to layered restrictions unique to the nation, the Korean crypto market has shrunk 7.9% of the world’s crypto trading volume in 2017, to just 2% today. This means there will be little impact on the world’s crypto markets once the retail frenzy deflates to normal. As everywhere else in the world, fears of inflation have caused an uptick in crypto interest, according to The Diplomat:

“Increasingly after COVID-19, both of these age groups seem to be alarmed by fears of monetary inflation followed by the government’s stimulus packages, skyrocketing real estate prices, and stagnating wages in the extremely competitive job market.”

For those who might be thinking of arbitrage – buying and selling from different exchanges – it might not be worth it. One would have to take into account multiple fiat conversions, taxes, different currency rates for foreigners, and currency remittances that take a couple of business days with weekends off.  

Nigeria’s Bitcoin Premiums as a Case Test for Crypto Deplatforming

With a large and still-booming population of over 201 million, many skilled Nigerians are leaving their homeland for better opportunities. This creates a situation in which frictionless money transfer becomes a highly sought service, and cryptocurrencies are there to meet that demand.

As a result, Nigeria outpaces all other nations when it comes to trading in cryptocurrencies. According to Paxful, Nigerians trade $65 million monthly in crypto. By trading volume, Nigeria is ranked third after the US and Russia, with over $400 million in transactions in 2020.

Last year, the Central Bank of Nigeria (CBN) devalued its native fiat currency naira (NGN) by 24%. For this year, estimates pin naira to a further 10% devaluation. In 2017, CBN banned cryptocurrency trading—but without much effect. Having the experience of the inefficacy of the past ban, the most recent ban in February was a regulatory one: banks shut down accounts for crypto companies.

Therefore, Nigerians are still allowed to hold and trade in cryptocurrencies, but not in the banking sector. This resulted in Bitcoin trading at 30 – 60% premium on the Nigerian crypto exchange Luno.

So far, stablecoins such as USDT and USDC were exceedingly useful in mitigating the effect caused by the regulatory intervention. Nonetheless, one has to wonder what would happen if CBN’s model of crypto banning is extended to the world’s power centers? After all, Nigerians are willing to pay for these exorbitant premiums only because other central bankers have not yet joined forces.

Bitcoin Can’t Really be ‘Banned’, but is Isolable

After Chinese authorities targeted crypto exchanges in 2019, Bitcoin dropped almost 50% only to quickly recover and keep rising. Likewise, the more recent news that the Chinese province of Inner Mongolia would shut down crypto mining operations in order to cut down on energy waste had no impact. In reality, the effect was quite the opposite.

This in itself is remarkable given the fact that Inner Mongolia has more crypto miners than the US. More importantly, however, is the looming threat of cutting off fiat currency from interlinking with the cryptocurrency ecosystem. If one cannot use cryptocurrencies to transfer value into the real world, it will have no value.

Ray Dalio, the head of the world’s largest hedge fund, Bridgewater Associates, seems to think that central banks deplatforming crypto is the most likely scenario. Last month, Dalio explained to Yahoo Finance that the current situation with Bitcoin, as digital gold hedging against inflation, is similar to the 1930s.

″Back in the ’30s in the war years … because cash and bonds were such bad investments relative to other things, there was the movement to those other things, and then the government outlawed them,”
…
“They outlawed gold.”…“That’s why also outlawing Bitcoin is a good probability,”

It’s clear that Bitcoin is becoming more difficult to access in certain jurisdictions. While it is most likely the case that Bitcoin cannot be technologically banned, it could be severely crippled by laws and regulations.

Imagine a scenario in which the EU, India, China, and the US all join hands in cutting off the ramp between fiat and crypto, as they all implement CBDCs. Based on the current trend and the idea that US/EU bankers are on the same page as Bill Gates, this future—at least to some extent—could very well be in the cards.

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