What’s the Kimchi Premium?
The ‘kimchi premium’ refers to the phenomenon where Bitcoin (BTC) is traded at significantly higher prices in South Korea compared to global markets. As of recently, the difference has spiked to a staggering $5,000, with prices reaching $45,115 on Bithumb while hovering around $39,932 on Coinbase. Talk about a wallet workout!
Why Does This Happen?
According to a recent statement from Bank of America, the reason behind this whopping price difference is largely attributed to strict capital flow controls. In simpler terms, the South Korean government is tossing a big ol’ block in the pool of capital that wants to swim out and nip some of that Bitcoin action. These controls prevent easy cross-border transfers, allowing local prices to remain high.
Effective Capital Control
Bank of America aptly pointed out that the onshore prices for cryptocurrencies in Korea are persistently above international prices. They stated,
“This suggests this to be a result of effective capital control that prevents effective arbitrage of onshore and offshore prices.”
In other words, Korean authorities are doing their best to keep crypto investments at home, resulting in the kimchi premium thriving like never before.
Demand for Bitcoin and Beyond
Despite Bitcoin witnessing a 32% drop recently, South Koreans are still in hot pursuit of cryptocurrencies. The trading volume in the Korean market skyrocketed in the first quarter of 2021, surpassing 1,480 trillion won (roughly $1.3 trillion). The digital currency market is a rollercoaster ride, and apparently, the folks in South Korea can’t get enough of this thrill!
Gold and Inflation: A Complicating Factor
If you think cryptocurrencies are the only game in town, think again! Gold prices have also been on an upward trajectory in South Korea, increasing for four consecutive days leading up to Tuesday. As inflation concerns continue to rise, gold is trading at 68,200 won ($60.36) per gram, a hefty 9.4% bump from two months prior. It seems like both crypto aficionados and gold bugs are in a bidding war!
Inflation Rates on the Rise
The Korean inflation rate jumped by 1.5% just in April alone, marking a sharp increase from what had been a sub-zero rate in 2019 to 2.3% now. Just imagine inflation as that one friend who shows up unexpectedly to the party, and before you know it, it’s out of control!
Conclusion: Riding the Waves of Market Influence
The ‘kimchi premium’ and the dynamic dance of Bitcoin and gold prices in South Korea offer fascinating insights into the current economic climate. With strict regulations governing capital flows, plus rising inflation rates, Korean investors seem to be straddling the line between crypto and precious metals, creating quite a marketplace spectacle.
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