🥬Kimchi Premium & Hidden Arbitrage🥬
On Jan 8, 2018, a man made $1.5B trading BTC in Korea.
BTC price was $25K in Korea.
But $16K elsewhere in the world.
57% arbitrage opportunity! WHAT?! This trade became infamously known as the Kimchi Premium.
Here's the full story:
👇
On Jan 8, 2018, a man made $1.5B trading BTC in Korea.
BTC price was $25K in Korea.
But $16K elsewhere in the world.
57% arbitrage opportunity! WHAT?! This trade became infamously known as the Kimchi Premium.
Here's the full story:
👇
1/ How it started
It was not always this way.
Back in Jan 2017, BTC hovered at $2K. Crypto prices between Korea & elsewhere was not that different.
By Dec 2017, BTC had soared 10x to $20K. Unknown to most of us, there was an even madder dash to panic buy in Korea than the US.
It was not always this way.
Back in Jan 2017, BTC hovered at $2K. Crypto prices between Korea & elsewhere was not that different.
By Dec 2017, BTC had soared 10x to $20K. Unknown to most of us, there was an even madder dash to panic buy in Korea than the US.
Suddenly S. Korea was trading 20% of all global BTC volumes on any given day. The "Korean Housewife Trader" became a meme.
Such localized trading frenzy caused local BTC prices to diverge from 1% premium to 10% to 30%...
At 30%, (even) CNN took notice:
money.cnn.com/2017/12/12/tec…
Such localized trading frenzy caused local BTC prices to diverge from 1% premium to 10% to 30%...
At 30%, (even) CNN took notice:
money.cnn.com/2017/12/12/tec…
2/ How to profit from the kimchi arbitrage
The premium got so big that local blog posts started leaking the alpha.
This picture literally explained step-by-step how to take advantage of the premium & implement the trade.
TLDR:
Buy BTC in US/EU. Transfer to Korea. Sell.
The premium got so big that local blog posts started leaking the alpha.
This picture literally explained step-by-step how to take advantage of the premium & implement the trade.
TLDR:
Buy BTC in US/EU. Transfer to Korea. Sell.
What could possibly go wrong??
...
...
...
...
...
...
3/ How the kimchi arbitrage ended (but not really)
Investors were only able to take advantage of the price gap for <1 year.
Then the government cracked down.
By implementing:
1. Domestic currency restrictions
2. New anti-money laundering laws
3. Foreign investment prohibitions
Investors were only able to take advantage of the price gap for <1 year.
Then the government cracked down.
By implementing:
1. Domestic currency restrictions
2. New anti-money laundering laws
3. Foreign investment prohibitions
Domestic currency restrictions
- Koreans now need overseas remittance to buy crypto at a foreign exchange
- can only send up to 50K USD /year abroad
- legal grayness on whether crypto is a “financial currency” --> may be subject to the “Foreign Exchange Transactions Act"
- Koreans now need overseas remittance to buy crypto at a foreign exchange
- can only send up to 50K USD /year abroad
- legal grayness on whether crypto is a “financial currency” --> may be subject to the “Foreign Exchange Transactions Act"
New AML laws
- Oct 2018: all virtual asset service providers (VASPs) became required to upgrade KYC/AML & register w/ the Korea Financial Intelligence Unit (KoFIU)
- Aug 2021: KoFIU even issued notices to 27 offshore VASPs whose biz “targets users in Korea” to register by 9/24
- Oct 2018: all virtual asset service providers (VASPs) became required to upgrade KYC/AML & register w/ the Korea Financial Intelligence Unit (KoFIU)
- Aug 2021: KoFIU even issued notices to 27 offshore VASPs whose biz “targets users in Korea” to register by 9/24
Foreign Investment Prohibitions
- foreigners now can't trade at all on domestic exchanges
- inflows from China, Japan & Singapore have supposedly dropped sharply ever since
- foreigners now can't trade at all on domestic exchanges
- inflows from China, Japan & Singapore have supposedly dropped sharply ever since
4/ Loopholes around the restrictions
1. Koreans went/go to HK to purchase crypto in cash (they skirted the $10K USD customs limit by insisting the cash was for "travel expenses")
2. After the gov banned credit cards for crypto trading, rumor goes they now use PayPal
1. Koreans went/go to HK to purchase crypto in cash (they skirted the $10K USD customs limit by insisting the cash was for "travel expenses")
2. After the gov banned credit cards for crypto trading, rumor goes they now use PayPal
5/ The Kimchi Premium Returns
April 2021:
BTC hit its 2021 local max.
Kimchi premium hits 11%.
Cointelegraph asks, "Is Bitcoin now in a 2017-esque retail stage of the cycle?"
cointelegraph.com/news/kimchi-pr…
Weeks later, BTC crashed.
... Could kimchi premiums be a bear indicator? 🤔
April 2021:
BTC hit its 2021 local max.
Kimchi premium hits 11%.
Cointelegraph asks, "Is Bitcoin now in a 2017-esque retail stage of the cycle?"
cointelegraph.com/news/kimchi-pr…
Weeks later, BTC crashed.
... Could kimchi premiums be a bear indicator? 🤔
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