The Kimchi Premium and Bitcoin Arbitrage Explained

In late 2017 to early 2018, South Koreans from traders to mom and pops were crazy about cryptocurrency. This is because many Koreans were making huge profits Arbitrage. Basically, Koreans were buying cryptocurrency outside of Korea for cheap and selling them high in Korea and got what was called a Kimchi Premium. The difference was so high that CoinMarketCap removed South Korean exchanges from its market cap index.

Why Koreans Crazy About Crypto?

Bitcoin in Korea

Many might not know this but Koreans cannot gamble in a casino in Korea. For many Americans, they are free to go to Atlantic City, Las Vegas, or any of the thousands of local Casinos around their city. Koreans do not have this luxury. In a way what these Casinos give is not just entertainment, but a small dream or hope for quick money. Koreans working in South Korea just work. Some even over 12 hrs a day. Most feel they are not getting what they deserve and more importantly, they are not doing what they like or dreamed of doing as a profession.

The South Korean government probably knows this which is why they will not make gambling in Casinos legal in Korea. But not just South Koreans but Asians in general love you gamble. Proof of this is Macau which dwarfs Las Vegas and attracts Asian gamblers from China and all across Asia.

Cryptocurrencies gave many Koreans a chance to gamble without even leaving their homes. Add this to the Kimchi Premium and you can understand why so many Koreans got into cryptocurrency so quickly.

How did Koreans Make Money from the Kimchi Premium?

Kimchi Premium

This was very simple. You take a random Korean who wanted to take advantage of the Kimchi Premium which was at times 40% higher (All time high 48%) than outside of Korea. They would contact a friend or family member from the United States or any other country where the price of the cryptocurrency was low and have them send the cryptocurrency to them in Korea. There they would be able to cash it out for a higher amount. This could be done over and over again. As more and more Koreans learned about this strategy the 40% lowered but very slowly. This meant that this arbitrage lasted for over a month. During that window, Koreans made off with millions of dollars.

Will the Kimchi Premium Happen Again?

This is very possible for the lone reason that still to this day no regulations on cryptocurrency trading has been made by the Korean government. The younger generation in Korea is still looking for alternative investment options. It might take another Kimchi Premium to force the Korean government to take action.