What Was the ‘Kimchi Premium’ and How Was It an Example of Regulatory Arbitrage?
The 'Kimchi Premium' was a well-known phenomenon where the price of Bitcoin in South Korea was consistently higher than on global exchanges, sometimes by as much as 30-50%. This price gap was a direct result of South Korea's strict capital controls and financial regulations, which made it very difficult for residents to move large amounts of Korean Won out of the country to buy cheaper Bitcoin elsewhere.
This created a persistent arbitrage opportunity that was difficult to close due to the regulatory friction, making it a prime example of regulatory-driven market inefficiency.
Glossar
Strict Capital Controls
Impediment ⎊ Strict capital controls, within cryptocurrency markets, represent governmental limitations on the flow of capital, impacting derivative valuations and trading strategies.
Kimchi Premium
Arbitrage ⎊ The Kimchi Premium, originating in South Korean cryptocurrency markets, represents a price discrepancy for a digital asset between exchanges, specifically a higher price on Korean exchanges relative to international markets.
Arbitrage Opportunity
Discovery ⎊ An Arbitrage Opportunity materializes when a transient price differential exists for the same asset or instrument across two or more distinct markets or execution venues, such as a spot crypto market and its corresponding perpetual futures contract.