Study Reveals South Korea’s ‘Kimchi Premium’ Strongly Linked to International Remittances to China

Study Reveals South Korea's ‘Kimchi Premium’ Strongly Linked to International Remittances to China

A newly-released research revealed in December 2022 reveals that South Korea’s “kimchi premium,” the divergence in cryptocurrency valuations on Korean exchanges in comparison with Western buying and selling platforms, is strongly related to a surge in worldwide remittances to China.

Examination of Overseas Remittances to China Uncovers Strong Correlation with South Korea’s ‘Kimchi Premium’

According to a study performed by Jangyoun Lee, an assistant professor at Incheon National University, and Taehee Oh of the Bank of Korea, South Korea’s kimchi premium seems to be considerably correlated with an inflow of abroad remittances to China. The researchers observe that the primary occasion of the kimchi premium in South Korea occurred in 2016, when there was excessive demand for bitcoin amongst Korean buyers however a restricted provide of BTC. Essentially, the kimchi premium refers back to the worth of bitcoin and different cryptocurrency belongings being considerably greater in South Korea than on Western exchanges.

The researchers detailed that the crew analyzed monetary information regarding abroad remittances to China from roughly 1,211 overseas alternate companies between Jan. 2016 and May 2021. Prior to Jan. 2018, through the bitcoin bull run of 2017, the researchers acknowledged that the premium peaked at near 55% earlier than subsiding. However, the kimchi premium reemerged through the first quarter of 2021, and the research’s authors famous that on May 19, 2021, the premium jumped by greater than 20% greater than the worth on Western cryptocurrency buying and selling platforms. The analysis paper’s authors add:

Our findings suggest that Chinese arbitrageurs use Korean monetary establishments as bitcoin-cashing retailers, changing digital currencies into fiat ones when the kimchi premium was persistently excessive.

The authors of the research recommend that a good portion of the premiums and enhance in overseas arbitrageurs have been associated to occasions in China. For instance, the paper particulars that whereas China banned cryptocurrencies, South Korea and international locations just like the U.S. determined to control the trade. “Therefore, Chinese arbitrageurs might solely money out their cryptocurrencies exterior of the nation,” in response to the producers of the “kimchi premium” analysis paper.

“This paper exhibits that the kimchi premium was positively associated to the upsurge of remittances to China after controlling for the vital drivers that immediately influence it, akin to equities, bonds, overseas exchanges, and the true economic system,” the writers of the paper contend. The authors additional posit that the findings illustrate the complexities of the worldwide cryptocurrency market and that worldwide requirements and customary rules are crucial to guard buyers. South Korea has been a “goal of cryptocurrency arbitrage merchants exploiting extra demand,” the paper insists.

South Korean Bitcoin Premiums in 2023

The kimchi premium persists to today, and at 9:00 p.m. Eastern Time on Jan. 9, 2023, the worth of Bitcoin (BTC) on Upbit and Bithumb, two of South Korea’s high cryptocurrency exchanges, was round $17,427 to $17,437 per unit. However, on the similar precise time, utilizing the worldwide common on coinmarketcap.com, the worth of BTC on Western exchanges was $17,205 per coin. This signifies that arbitrage merchants swapping BTC can fetch a premium of round 1.35% on South Korean exchanges, and there’s additionally a distinction within the costs of ethereum (ETH) on Western exchanges in comparison with its worth on South Korean exchanges.

High premiums for BTC have additionally occurred periodically on the Japanese cryptocurrency alternate market. Premiums on bitcoin have additional been noticed in international locations akin to Thailand, Hong Kong, Brazil, Malaysia, the Philippines, and Chile. Furthermore, earlier than in-person trades have been banned on the buying and selling platform NativeBitcoins, arbitrage alternatives have been available. While the development has decreased relying on the nation and the liquidity of bitcoin within the area, overseas arbitrageurs can nonetheless revenue from exchanging funds between two areas.

What do you concentrate on the research in regards to the South Korean kimchi premiums and the findings that recommend they’re associated to Chinese remittances? Let us know what you concentrate on this topic within the feedback part under.

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