Bitcoin (BTC) briefly reached a record high of 96,734,000 South Korean Won or $72,504 on March 5th at 3:00 pm (UTC) on Upbit, the largest cryptocurrency exchange in South Korea.
The price difference, also known as the Kimchi Premium or Korea Premium Index, has been increasing alongside the BTC price since early February. According to on-chain data from CryptoQuant, the Korea Premium index rose from 5.19 on February 28th to 6.84 on March 5th.
This rise in the premium coincided with Bitcoin reaching a new all-time high above $69,200 on March 5th, driven by continued inflows into Bitcoin ETFs in the United States. The rally in Bitcoin price is mainly fueled by institutional demand in the US, while in South Korea, retail spot buying is the main driver.
The Kimchi premium was first observed in 2016 and gained attention in a 2019 paper from the University of Calgary. It was found that South Korean Bitcoin exchanges consistently had higher prices than exchanges in the US between January 2016 and February 2018. During the bull run in December 2017, South Korean exchanges were trading Bitcoin nearly 50% higher than most exchanges worldwide, leading to the removal of some Korean exchanges from CoinMarketCap.
During the current bull run in 2021, the Kimchi premium reached its peak at 21.56% on May 19th when Bitcoin was trading above $36,000 before reaching its previous all-time high in November.
Some traders may be attempting to profit from these price differences through arbitrage, but the premium mainly persists due to market inefficiencies, particularly during strong upward trends.
In the meantime, South Korea’s financial watchdog is reportedly considering allowing spot Bitcoin ETFs in the country, which could potentially eliminate this price difference if approved. The governor of the Financial Supervisory Service, Lee Bok-hyun, stated that discussions are ongoing internally regarding virtual assets.
At the time of writing, the Korea Premium Index remains intact, with Bitcoin trading at around 93,800,000 KRW ($70,000) on Upbit, while BTC price elsewhere hovers around $67,000.
Please note that this article does not provide investment advice or recommendations. Readers should conduct their own research and exercise caution when making investment decisions.