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

A newly-released survey published successful December 2022 reveals that South Korea’s “kimchi premium,” the divergence successful cryptocurrency valuations connected Korean exchanges compared to Western trading platforms, is powerfully associated with a surge successful planetary remittances to China.

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

According to a study conducted by Jangyoun Lee, an adjunct prof astatine Incheon National University, and Taehee Oh of the Bank of Korea, South Korea’s kimchi premium appears to beryllium importantly correlated with an influx of overseas remittances to China. The researchers enactment that the archetypal lawsuit of the kimchi premium successful South Korea occurred successful 2016, erstwhile determination was precocious request for bitcoin among Korean investors but a constricted proviso of BTC. Essentially, the kimchi premium refers to the terms of bitcoin and different cryptocurrency assets being importantly higher successful South Korea than connected Western exchanges.

The researchers elaborate that the squad analyzed fiscal information concerning overseas remittances to China from astir 1,211 overseas speech businesses betwixt Jan. 2016 and May 2021. Prior to Jan. 2018, during the bitcoin bull tally of 2017, the researchers stated that the premium peaked astatine adjacent to 55% earlier subsiding. However, the kimchi premium reemerged during the first 4th of 2021, and the study’s authors noted that connected May 19, 2021, the premium jumped by much than 20% higher than the terms connected Western cryptocurrency trading platforms. The probe paper’s authors add:

Our findings connote that Chinese arbitrageurs usage Korean fiscal institutions arsenic bitcoin-cashing outlets, converting virtual currencies into fiat ones erstwhile the kimchi premium was persistently high.

The authors of the survey suggest that a important information of the premiums and summation successful overseas arbitrageurs were related to events successful China. For example, the insubstantial details that portion China banned cryptocurrencies, South Korea and countries similar the U.S. decided to modulate the industry. “Therefore, Chinese arbitrageurs could lone currency retired their cryptocurrencies extracurricular of the country,” according to the producers of the “kimchi premium” probe paper.

“This insubstantial shows that the kimchi premium was positively related to the upsurge of remittances to China aft controlling for the important drivers that straight interaction it, specified arsenic equities, bonds, overseas exchanges, and the existent economy,” the writers of the insubstantial contend. The authors further posit that the findings exemplify the complexities of the planetary cryptocurrency marketplace and that planetary standards and communal regulations are indispensable to support investors. South Korea has been a “target of cryptocurrency arbitrage traders exploiting excess demand,” the insubstantial insists.

South Korean Bitcoin Premiums successful 2023

The kimchi premium persists to this day, and astatine 9:00 p.m. Eastern Time connected Jan. 9, 2023, the terms of Bitcoin (BTC) connected Upbit and Bithumb, 2 of South Korea’s apical cryptocurrency exchanges, was astir $17,427 to $17,437 per unit. However, astatine the aforesaid nonstop time, utilizing the planetary mean connected coinmarketcap.com, the terms of BTC connected Western exchanges was $17,205 per coin. This means that arbitrage traders swapping BTC tin fetch a premium of astir 1.35% connected South Korean exchanges, and determination is besides a quality successful the prices of ethereum (ETH) connected Western exchanges compared to its worth connected South Korean exchanges.

High premiums for BTC person besides occurred periodically connected the Japanese cryptocurrency speech market. Premiums connected bitcoin person further been observed successful countries specified arsenic Thailand, Hong Kong, Brazil, Malaysia, the Philippines, and Chile. Furthermore, earlier in-person trades were banned connected the trading level LocalBitcoins, arbitrage opportunities were readily available. While the inclination has decreased depending connected the state and the liquidity of bitcoin successful the region, overseas arbitrageurs tin inactive nett from exchanging funds betwixt 2 locations.

What bash you deliberation astir the survey concerning the South Korean kimchi premiums and the findings that suggest they are related to Chinese remittances? Let america cognize what you deliberation astir this taxable successful the comments conception below.

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