Cryptocurrencies command ‘Kimchi Premium’ in South Korea due to capital flow controls – BofA

May 18, 2021 - 7:19 PM
A representation of virtual currency Bitcoin is seen in front of a stock graph in this illustration taken January 8, 2021. (Reuters/Dado Ruvic/File Photo)

SEOUL — Cryptocurrencies like Bitcoin in South Korea carry a hefty premium over international prices due to capital flow controls aimed at curbing cross-border flows of hot money, which prevent arbitrage, the Bank of America said in a report on Tuesday.

On Tuesday, Bitcoin, the world’s biggest and best-known cryptocurrency, was trading at $45,219 on Bitstamp Exchange, but data from the shows it was trading about $4,000 higher in South Korea. Back in January, 2018, the premium went as high as almost $8,000.

“The onshore price for cryptocurrencies in Korea is persistently above international prices suggesting this to be a result of effective capital control that prevents effective arbitrage of onshore and offshore prices,” a Bank of America report showed on Tuesday.

“Korean capital controls allow the ‘Kimchi premium’ to persist,” it said, calling the phenomenon after Korea’s spicy pickled cabbage side dish.

Currently, individuals’ purchases of foreign currency are capped at 50,000 annually.

The estimated daily volume of trading in cryptocurrencies in South Korea reached 1,480 trillion won ($1.31 trillion) in the first quarter, and the daily trading volume sometimes exceeds the combined trading volume on the KOSPI and KOSDAQ share markets, the report said. ($1 = 1,127.8200 won) —Reporting by Cynthia Kim; Editing by Simon Cameron-Moore