Understanding the Kimchi Premium: Insights from South Korean Experts
A lack of corporate investment in Bitcoin (BTC) by South Korean companies is believed to be the driving force behind the kimchi premium, according to experts in South Korea. This phenomenon refers to the significant price discrepancy between BTC in South Korea and the rest of the world, with prices in South Korea often exceeding global prices by around 10%. Additionally, the limited domestic investment options available in South Korea contribute to this trend.
The Impact of South Korean Companies
Despite a recent dip in BTC prices, the kimchi premium remained strong at over 8% during the weekend. Trading volumes on major domestic platforms also continued to rise steadily since early February. Hwang Seok-jin, a Professor at Dongguk University, explained that compared to other countries, there are relatively few corporations in South Korea that hold Bitcoin. As a result, the upward price pressure is higher due to the smaller amount of Bitcoin held by institutions compared to individual investors. This becomes particularly noticeable during periods of excessive demand.
Challenges Faced by South Korean Companies
In early 2021, when Tesla announced its Bitcoin investments, there was speculation about whether South Korean firms would follow suit. However, several crypto-related controversies and legal cases involving traders accused of exploiting the kimchi premium have hindered these companies’ attempts to invest in Bitcoin.
Wealth Disparity and Investment Options
Experts also point out that South Korea’s wealth relative to its citizens’ investment options is another factor contributing to the kimchi premium. The country has experienced consistent wage increases over the past two decades, with conglomerate employees earning more than their East Asian counterparts. However, there is a “lack of investment sources” due to a sluggish domestic stock market, which drives investors, especially the younger generation, towards cryptoassets.
Other Factors at Play
Besides corporate investment and limited investment options, other factors also contribute to the kimchi premium:
- Bans on overseas exchanges targeting South Korean customers: These bans have led to liquidity concerns during periods of high demand. Only five South Korean companies have licenses that allow them to offer KRW-crypto trades.
- High level of interest in cryptoassets: South Koreans generally have a higher level of interest in cryptoassets compared to people in other countries, which could also contribute to the kimchi premium.
Hot Take: Understanding the Kimchi Premium Phenomenon
The kimchi premium in South Korea is driven by a combination of factors, including a lack of corporate investment in Bitcoin and limited investment options in the domestic stock market. These factors create upward price pressure during periods of excessive demand. Additionally, bans on overseas exchanges targeting South Korean customers and the country’s high level of interest in cryptoassets contribute to the kimchi premium phenomenon. As a result, BTC prices in South Korea often exceed global prices by around 10%. It remains to be seen how these factors will evolve and whether South Korean companies will increase their involvement in Bitcoin investments in the future.
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