While in global markets bitcoin (BTC) is being sold at prices hovering around USD 58,000, in South Korean markets, digital currency is trading at $ 66,000, in what is called the Kimchi effect or « Kimchi Premium ”, in English.
The Kimchi effect is the difference in prices that bitcoin (BTC) and other digital currency have in South Korean markets compared to Exchanges in other parts of the world.
Right now, for example, the price of BTC is at 77 million Korean won (KRW), equivalent to USD 68,200, on the Bithumb exchange, according to TradingView. In Korbit, another South Korean exchange, BTC is trading at KRW 76 million, equivalent to USD 66,000. Meanwhile, the overall average BTC price is USD 58,000, as shown by CriptoNoticias ’price calculator.
As for ether (ETH), Ethereum’s digital currency, it is trading at just over $ 2,400 on Korean Exchanges, according to TradingView, when its global average price is $ 2,100, according to CoinMarketCap.
The Kimchi effect was formally studied in 2018 by researchers at the University of Calgary, located in Canada, with respect to the phenomenon in question observed between 2016 and 2018, where the price of BTC differed by almost 5% in the South Exchanges. Koreans.
Although this phenomenon could be interpreted, perhaps, as an increase in demand for BTC in South Korea, the study attributed the Kimchi effect in part to the extra costs that Koreans have to pay when it comes to acquire bitcoin because of taxes and regulations. The study states that BTC tends to trade more expensively in countries with fewer financial freedoms, Where friction would be generated.
Yet South Korea ranks 24th among 178 countries in terms of economic freedoms, According to the Heritage Foundation’s Economic Freedom Index, new restrictions were recently approved on exchange offices in this country, according to specialized media.
As of March 25, all digital currency exchange offices in South Korea have had to register with the Financial Intelligence Unit (FIU) of the Financial Services Commission (FSC) in that country. . This bureaucratic procedure is mainly motivated by the risks of money laundering, in the opinion of the authorities, and could create bureaucratic obstacles in the South Korean Exchanges.
One of the affected exchange offices is OKEx, which stated it would cease operating in South Korea by April 7, 2021, fleeing these regulations that would make it impossible for it to operate in the country, as reported by CriptoNoticias.
Can you take advantage of the Kimchi effect? probably not
Although some traders might want to take advantage of the Kimchi effect, making trade between the rest of the world (cheaper) and South Korean (more expensive) markets, this would not be as easy as thexchanges of South Korea are prohibited from providing their services to foreign customers.
Likewise, the barrier for South Korean traders lies in the fact that other exchange houses in the world do not accept the Korean won (KRW). However, if a South Korean user found a way to buy cheaper bitcoins abroad, and sell them in the local market, he could surely make a profitable operation.
It should be remembered that the user would be subject to the KYC policies of the exchange where he operates and possibly entails fulfilling his tax responsibilities, as well.