For folks who were around in the crypto space during the 2017 mega bull run, the term “Kimchi Premium” refers to the dizzying premiums paid by Korean customers for buying cryptocurrencies, especially Ethereum and bitcoin. The premium was eventually arbitraged out by investors that had access to both Korean and US banking channels. The significant retail uptake that we witnessed as part of the 2017 run up caused the prices of cryptocurrencies in South Korea to trade at up to a 25% premium to their global equivalent USD prices, forcing the government to clamp down hard on cryptocurrencies. Such was the demand for cryptocurrencies in 2017 and the “Kimchi Premium” was an indicator of extreme forms of FOMO could often lead to mathematical absurdities in the markets.
Now, as we start on the 2019 version of the bull run, we are seeing the price spread between South Korean prices and the US prices diverge again, partly as a result of the steep run up in bitcoin prices over the past weeks. The price premium in USD terms has reached a high of $1000 (or 10% premium) in the last couple of days, perhaps due to the significant rise in demand for bitcoin among retail investors.
The “Kimchi Premium” is the second instance where the local prices for bitcoin in a major market have traded at a meaningful premium to their global USD prices. Here we exclude basket-cases such as Venezuela, Zimbabwe, etc., where crypto prices are always trading off global price ranges due to local supply-demand dynamics. Three weeks ago, with the market was awash with rumors of a potential ban on cryptocurrencies in India, bitcoin started to trade at a premium of $200 - the so-called “Curry Premium” on India’s underground exchanges. Indian exchanges have been completely grounded after the central bank of India cut off the fiat on-ramps for crypto-related businesses in India. Most trading these days happens through surreptitious underground p2p exchanges, that operate strictly in the grey zone, and on WhatsApp groups, and on Signal and Telegram channels.
Interestingly enough, by some measures, India has the highest amount of latent interest in cryptocurrencies after the United States.