What Is It Kimchi Premium? What Are Its Legal Implications?

Crypto trading remains a niche activity globally, largely attracting individuals with a high tolerance for risk. However, it has gained significant popularity in South Korea, where the volume of cryptocurrency trades has surpassed that of equities on the Kospi, the country’s main stock index.

Due to strict currency controls and anti-money laundering regulations, South Koreans are restricted from converting their funds into foreign currencies to trade on international crypto exchanges. As a result, only local exchanges can cater to the overwhelming demand for digital assets. This has led to a premium price for Bitcoin and other cryptocurrencies in South Korea compared to other countries, a phenomenon known as the “Kimchi premium,” named after the popular Korean dish.

The Kimchi premium became widely recognized during the Bitcoin bull run of 2017, when cryptocurrency prices surged past $19,000. The name’s exact origin remains unclear, but it has since become synonymous with the price difference between South Korean exchanges and global markets. This price differential is the basis of crypto arbitrage trading, which made headlines with the rise of Sam Bankman-Fried, a crypto entrepreneur who capitalized on the Kimchi premium to gain fame and fortune.

However, attempting to profit from this price difference carries legal risks. The notion of arbitrage and the convergence of asset prices in the global financial system generally leads to swift corrections, but the unique situation in South Korea continues to create this premium.

The popularity of crypto trading in South Korea is undeniable, with about 7 million people—almost 15% of the population—now registered on crypto exchanges. Despite market volatility in 2022, South Koreans have remained committed to digital assets, and this year, the volume of crypto transactions in the Korean won surpassed that of the US Dollar.