Kimchi Premium

The kimchi premium is the difference by which the price of a cryptocurrency, most often Bitcoin (BTC), on South Korean exchanges exceeds its price on major exchanges elsewhere, after converting the South Korean won (KRW) price into US dollars. The name, an informal market term, refers to kimchi, the Korean fermented vegetable dish. The premium has at times been large enough to attract international attention, and it has occasionally turned negative, which traders call a kimchi discount.

In an open market such a gap would be closed quickly by arbitrage: traders would buy coins abroad, sell them in Korea and bring the profit home. The kimchi premium persists because South Korea restricts the movement of money across its borders and limits who can use its domestic exchanges, so the two halves of that trade are hard to complete. Similar gaps appear in other countries with capital controls, where a crypto price acts as an indirect reading of a parallel market rate.

Imagine a popular brand of trainers that sells for 100 dollars everywhere, but in one country the shops charge 130. Normally people would buy pairs abroad, carry them in and sell them at the higher price until the gap disappeared. But if customs strictly limits how many you can bring in, and the banks make it hard to send the profits back out, the gap can last for months.

The kimchi premium is that situation for crypto. Korean buyers want coins, the coins are the same everywhere, but rules on moving money in and out of the country stop outsiders from easily selling into Korean demand.

The premium compares the Korean price, converted at the market exchange rate, with a global reference price:

• $P_{\text{KRW}}$ is the price of one coin on a Korean exchange, in won.
• $S$ is the won-per-dollar exchange rate.
• $P_{\text{USD}}$ is the price of the same coin on a major international exchange, in dollars.

Worked example, with illustrative figures: a coin trades for 66,000,000 won in Seoul, the exchange rate is 1,200 won per dollar and the coin trades for $50,000 abroad. The Korean price in dollars is $66{,}000{,}000 \div 1{,}200 = 55{,}000$. The premium is $(55{,}000 - 50{,}000) \div 50{,}000 \times 100 = 10$, so Bitcoin is 10% dearer in Korea. Trackers differ in which exchanges and exchange rate they use, so published premiums vary slightly.

• Capital and exchange controls. Korea's foreign exchange rules require documentation and reporting for outward remittances, which makes moving large sums abroad to buy coins slow and conspicuous.
• Real-name accounts. Since January 2018 Korean exchanges have been allowed to accept won only from verified real-name bank accounts in the user's own name, under know your customer (KYC) and anti-money laundering (AML) rules. Foreign nationals largely cannot open such accounts.
• Registration of exchanges. Amendments to Korea's Act on Reporting and Using Specified Financial Transaction Information require virtual asset service providers to register with the Korea Financial Intelligence Unit, which concentrated won trading on a small number of licensed centralized exchanges such as Upbit and Bithumb.
• Strong retail demand. Korea has one of the most active retail crypto markets, so demand surges during a bull market can outrun the limited supply of coins flowing in.

The premium became widely known during the 2017–18 crypto bubble. In January 2018 it reached roughly 50% on Bitcoin, with published peaks ranging from the high 40s to about 55% depending on the data source. When the real-name account system took effect at the end of January 2018 and prices fell worldwide, the premium collapsed within weeks. It returned in smaller form during later rallies, including early 2021, and has at times turned into a discount during periods of weak Korean demand.

Large premiums have also attracted illegal schemes. Korean authorities have reported cases in which traders disguised transfers as trade payments or used informal channels to move money abroad, buy coins and sell them at home, which breaches foreign exchange law. Such cases show the premium's link to regulatory arbitrage and to the wider economics of currency arbitrage.

Countries with currency restrictions often show their own crypto premium on P2P trading platforms, where local buyers pay above the global price for Tether (USDT) or Bitcoin. In such markets the premium mostly reflects the gap between the official exchange rate and what people will actually pay for dollars, and can be estimated with a black market premium calculator. Korea's case differs in that the won is freely traded; the premium there reflects limits on access to crypto markets rather than a scarcity of dollars.

• Financial Services Commission (Republic of Korea)
• Korea Financial Intelligence Unit