What Factors Contribute to the Kimchi Premium? Insights from South Korean Specialists

According to South Korean experts, the discrepancy in crypto prices known as the kimchi premium is influenced by a lack of corporate investment in Bitcoin (BTC) within South Korea.

As reported by Hanguk Kyungjae, the limited domestic investment alternatives contribute to the phenomenon, which recently saw BTC prices in South Korea exceed global prices by 10%.

Kimchi Premium: Are South Korean Companies Responsible?

Even with a recent decline in BTC prices, the kimchi premium remained robust at over 8% during the weekend.

Kimchi premium prices for Bitcoin at the time of writing. (Source: Cryprice)

Trading activity on major domestic exchanges also stayed elevated, having begun a steady increase in early February.

Trading volumes on the Upbit crypto exchange over the last three months. (Source: CoinGecko)

The media outlet cited Hwang Seok-jin, a Professor at Dongguk University, who stated:

“In comparison to other countries, there are relatively few companies in South Korea that possess Bitcoin. Since the volume of Bitcoin held by institutions is less than that held by individual investors, the upward price pressure is comparatively significant. This is especially evident during times of heightened demand.”

South Korean media were intrigued when Tesla revealed its Bitcoin investments in early 2021.

During the 2021 crypto bull market, speculation arose regarding whether South Korean companies would seek to follow suit.

However, various crypto-related controversies have so far hindered major corporations from investing in Bitcoin.

Legal issues involving traders accused by prosecutors of taking advantage of the kimchi premium have not helped their cause.

Stock Market Challenges Influence Bitcoin Demand?

Other experts suggested that the disparity in wealth concerning investment opportunities for South Koreans is another contributing factor.

The Gross Domestic Product (GDP) in South Korea grew by 2.2 percent in the fourth quarter of 2023 compared to the same quarter the previous year, following a 1.4 percent increase in the third quarter. https://t.co/c8X3wZxgHS pic.twitter.com/jzvrgW3Xz3

— TRADING ECONOMICS (@tEconomics) March 4, 2024

South Korean wages have been on the rise annually for the past two decades. Employees of conglomerates in the country earn more than most of their East Asian peers, as reported by Yonhap this week.

Nevertheless, a “lack of investment options” continues to exist, attributed to a “sluggish domestic stock market,” according to experts.

Stocks fell sharply on Friday after a three-day rally as foreign investors engaged in selling amid higher-than-expected inflation in the United States. The local currency experienced a significant decline against the dollar. https://t.co/gwQ6OH8JQ5

— The Korea JoongAng Daily (@JoongAngDaily) March 15, 2024

Kim Young-ik, a Professor at Sogang University’s Graduate School of Economics, remarked:

“Given the recent sluggishness and lack of responsiveness in the domestic stock market, there is a tendency for investors, particularly the younger demographic, to gravitate towards […] cryptoassets.”

Experts noted that additional factors are also influencing the situation, such as restrictions on overseas exchanges that cater to South Korean customers.

This particular issue has resulted in liquidity concerns during periods of high demand. Only five South Korean firms hold licenses to facilitate KRW-crypto transactions.

A sign outside a Bithumb crypto exchange branch in South Korea. (Source: MBC/YouTube)

The media outlet acknowledged that another potential factor contributing to this unusual crypto price phenomenon may also be relevant. The newspaper stated:

“The kimchi premium could also indicate that South Koreans generally possess a greater interest in cryptoassets compared to individuals in other nations.”

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