At 3:00 pm (UTC) on March 5, Upbit, South Korea's largest cryptocurrency exchange, briefly soared to a new high of 96,734,000 won (approximately $72,504). This discrepancy in price, often referred to as the Kimchi Premium or Korean Premium Index, has been on the rise alongside Bitcoin's prices since early February.
According to data from on-chain data resource CryptoQuant, the Korean Premium Index surged to 6.84 on March 5 from 5.19 on February 28. Meanwhile, Bitcoin prices soared to an all-time high above $69,200 on the same day, fueled by continued inflows into U.S. Bitcoin ETFs.
CryptoQuant analyst Ho Chan Chung explained that the surge in Bitcoin prices has primarily been propelled by institutional demand in the United States. However, the scenario differs in South Korea, where the absence of a spot Bitcoin ETF means that retail spot buying mainly propels Bitcoin prices upward.
The phenomenon of the Kimchi Premium was first observed in 2016 and was highlighted in a 2019 University of Calgary paper. According to researchers, between January 2016 and February 2018, prices on South Korean Bitcoin exchanges averaged 4.73% higher than those on U.S. exchanges.
During the Bitcoin bull run in December 2017, trading volume on Korean exchanges was nearly 50% higher than that on most global exchanges, prompting CoinMarketCap to delist some South Korean exchanges due to "extreme price differences with the rest of the world." Despite efforts to capitalize on price differences through arbitrage, the premium persists primarily due to market inefficiencies, particularly during strong uptrends. However, amid growing interest in Bitcoin, South Korean financial regulators are reportedly considering allowing the launch of a spot Bitcoin ETF in the country, which, if approved, could potentially mitigate the spread.
As of the latest update, the Korean Premium Index remains unchanged, with Bitcoin trading at approximately 93,800,000 won ($70,000) on Upbit, while Bitcoin prices elsewhere hover around $67,000. According to a report by Reuters on March 5, Lee Bok-hyun, Director of the Financial Supervisory Service, mentioned ongoing internal discussions regarding the matter, indicating differing attitudes among authorities towards virtual assets.
