According to the CoinGecko platform, today the price of Bitcoin is $ 57,117, and over the last 24 hours the cryptocurrency has lost almost 1.1 percent of its value.
The level of 60 thousand dollars, confident overcoming of which can guarantee growth to a new historical maximum, remains insurmountable for now. The current situation, among other things, was affected by what is happening on the Korean cryptocurrency exchanges.
At the same time, the so-called «kimchi markup» – that is, the difference between the usual bitcoin rate and the highest price at which BTC is traded in South Korea – fell significantly the day before. Recall that the country’s crypto-exchanges are under strict government regulation. Combined with high demand, the price of cryptocurrency in Korea is usually slightly higher than most crypto exchanges in the rest of the world.
This difference is called «kimchi premium» or Kimchi Premium. In fact, the price of Bitcoin reached 70 thousand dollars on Korean trading platforms, but now it is returning to the global value. And this also affects the situation on stock exchanges in other countries.
What will happen to the price of Bitcoin?
According to the CEO of the CryptoQuant analytical platform, Ki Yong Joon, someone still found a way to conduct arbitrage from Korean exchanges, which led to the fall of Kimchi Premium. Here is his remark, in which the expert shared his vision of the situation. The cue is from Decrypt.
It seems that someone has finally figured out how to use the markup for their own purposes. The trading volume for the 30-minute period on the largest Korean exchange Upbit was higher than that of Binance. This drop in the BTC rate seems to be related to the narrowing of the margin.
As a reminder, arbitrage is a trading method in which traders buy an asset where it is sold at a lower price and sell it where it is sold at a higher price. In this case, this would entail buying bitcoins outside of Korea and selling them on the Korean market. This method helps to balance supply and demand and «align» prices on different exchanges.
Usually, bots are looking for the difference between rates and opportunities for earning without a sharp change in the value of an asset, that is, special programs that, if necessary, conduct dozens of transactions in seconds. By the way, thanks to the presence of bots, the cost of cryptocurrencies on different trading platforms is almost the same.
According to CryptoQuant data, the premium fell from 20 percent to 11.6 percent in two hours yesterday and then bounced back slightly to its current value of 14.6 percent. The indicator graph is as follows.
The kimchi surcharge is formed due to Korea’s strict capital controls. Sending large amounts of Korean won outside the country is very difficult, making it difficult to profit from arbitration and convert to dollars. There are also strict reporting requirements for the withdrawal of large capital from the country.
That is, in fact, interacting with cryptocurrencies within a country is not easy. That is why the cost of Bitcoin and other coins on local exchanges is noticeably higher than on trading floors from other countries. Now this difference was used by someone to earn money, and on a large scale.
The Kimchi Premium was previously operated by FTX CEO Sam Bankman-Freed. According to New York Magazine, in 2018 he used a number of intermediaries, as well as some banks in Japan, to use the method of selling bitcoins in Korea and withdrawing money from the country. Then the head of FTX managed to achieve the withdrawal of capital from South Korea in the amount of approximately $ 25 million a day.
Ju noted that something like this could happen again. He pointed to the large influx of funds to the Korean exchange Bithumb and suggested that major market players could use the exchange to sell BTC. At the same time, he admitted that the drop in Kimchi Premium could be due to the announcement by cryptocurrency exchange Upbit that it has resumed withdrawals and deposits. These procedures were previously suspended.
We believe that what happened once again proves the youth of cryptocurrencies as an asset category. Governments are still trying to ban them – although this does not end with anything, and in some countries, the same Bitcoin costs significantly more than the normal price.
However, the situation will change over time. As the current situation shows, traders find an option to bypass the restrictions and open access to the decentralized world of coins to everyone. Further, this trend is likely to intensify, which will make blockchain assets more popular.
