What is Kimchi Premium?
Let's find out Kimchi Premium meaning, definition in crypto, what is Kimchi Premium, and all other detailed facts.
Kimchi Premium is a phenomenon that occurs in South Korean cryptocurrency exchanges, causing the value of specific tokens to be greater than on other international exchanges. How does it work? A trader from South Korea needs to buy a token, let’s say Bitcoin, from an exchange that is outside of South Korea, and then sell it on one of the South Korean exchanges, let’s say Bithumb. This way, the trader buys a token for a smaller price elsewhere but sells it for a higher price in South Korea.
The Kimchi Premium was identified as a phenomenon at the beginning of 2016. The token value differences due to the Kimchi Premium were highest between 2016 and 2018. In January of 2018, the difference between Bitcoin values in South Korean exchanges and other international exchanges was about 55%. However, normally, it is about 4.5%.
The difference between token values all over the world happens for a reason. What is the reason? Well, cryptocurrency trading is a decentralized process. Therefore, when blockchain technology evolves and new crypto tokens emerge, it is hard for exchanges all over the world to keep up with the constant waves of changes and adapt to them at the same time. Thus, it results in phenomena like Kimchi Premium.
However, taking advantage of these differences in token values is not a new practice in the cryptocurrency world. The Kimchi Premium phenomenon only happens in South Korea but smaller token value differences occur all over the world. Therefore, when traders notice it, they start trading between different exchanges to gain more profit.
Though taking advantage of the Kimchi Premium is technically a form of arbitrage. Therefore, the South Korean government has imposed strict capital control restrictions to prevent traders from making a profit from this phenomenon. Besides, other financial regulations and Anti Money Laundering legislation prevent the traders from manipulating the market through the Kimchi Premium even more.