As the price of Bitcoin sets new records every day, the fervor among investors in Korea is fueling a notable overheating of the market. Concerns are rising as the soaring demand is pushing up the “kimchi premium,” a phenomenon where cryptocurrency in Korea trades above the global rate.
As of 2:30 p.m. on Thursday, Bitcoin traded at 104.4 million won ($79,238) on Upbit, Korea’s largest crypto exchange, up 2.8 percent from the previous session. Meanwhile, on Binance, a global exchange, Bitcoin traded at $72,974, resulting in a price gap of about 8.5 percent.
This gap, known as the kimchi premium, occurs primarily because the supply here cannot keep up with the rising demand from investors.
Until early this year, the premium remained within a stable range of 1-3 percent. However, it escalated to 8 percent after Bitcoin’s price surged past the 100 million won mark on Monday. The premium even reached 10 percent — a peak not seen since May 2021.
The increase signals that the enthusiasm among domestic investors is reaching unstable levels, especially considering that market observers typically view a 5 percent premium as already high.
Remarkably, on Tuesday, the total volume of transactions on Korea’s five cryptocurrency exchanges surpassed the trading volume on the benchmark KOSPI.
As the price hit 100 million won, numerous investors began sharing their success stories online, boasting about substantial profits from Bitcoin trading. It included an attention-grabbing online post, where a government worker claimed to have earned 1.5 billion won, or a 75.6 percent investment return, through Bitcoin trading.
This story, among others, has reignited the fear of missing out (FOMO) among individual investors, who are eager not to miss their chance in the bullish market that many have been anticipating.
A trading graph of Bitcoin is displayed at Upbit’s offline customer center in Seoul, Wednesday. Newsis
“I’ve come across countless success stories, both online and in person, and I can’t help but feel envious. It has led me to keep a close eye on the cryptocurrency market, hoping to time my investment perfectly,” an office worker surnamed Sung said.
In addition to investor sentiment, some experts also point to the unfavorable market conditions in Korea as another factor exacerbating the kimchi premium.
Foreign and institutional investors encounter restrictions when trying to access Korean cryptocurrency exchanges, while Korean investors face numerous regulatory hurdles when attempting to trade on international platforms. This regulatory framework creates a scenario where the typical practice of arbitrage trading, which could potentially mitigate such premiums, becomes impossible.
Crypto arbitrage trading indicates profiting from price discrepancies across different markets or platforms. It is known to play a significant role in equalizing cryptocurrency prices globally.
Nevertheless, the investment fervor is expected to continue for some time, buoyed by optimistic market forecasts. Initially predicting that Bitcoin could reach $120,000 within the year, Standard Chartered has now revised its outlook upward, suggesting a potential surge to $200,000 by 2025. Some crypto influencers even claim that if the halving event coincides with interest rate cuts in the U.S., the price could soar to $300,000 this year.
However, experts caution against rushing into crypto investments, emphasizing their inherently volatile nature.
“The present price of Bitcoin is primarily propelled by the demand for spot exchange-traded funds (ETFs). Should demand wane, a decline in price is inevitable,” Hong Song-uk, an analyst at NH Investment & Securities, said. “Considering the initial indicators of market overheating, including the sharp increase in ‘meme coins,’ caution is advised for those contemplating investments.”
