What is “Kimchi Premium” For Crypto Prices? South Korea’s Central Bank Attempts to Stop It
South Korea’s Central Bank Tries To Stop “Kimchi Premium” Crypto Prices
The government of South Korea, one of the countries with some of the highest crypto adoption rates in the world, has largely been against something called the “Kimchi Premium”, which are “special” premium prices for acquiring cryptos in the country that are different in domestic exchanges when compared to the global prices.
Some officials of the Bank of Korea (BOK) have called for more vigilance over the Kimchi Premium, which is named after a popular Korean dish. The bank’s officials are interested in monitoring the market to avoid letting people exploit the system using these services.
During the Bitcoin mania in 2017 many exchanges in the country offered the Kimchi Premium service and it reached the number of 50 percent in January. Korean regulators took charge of the situation and decided to ban anonymous trading of cryptos as a policy to kill the premium as it was spreading.
According to Kim Young-bum, from Korea’s Financial Services, the actions of the government and the policies have led the Kimchi Premium to basically disappear in the country. At its peak, the market reached 50 percent of the exchanges, but authorities were able to contain it.
At the moment, the prices in South Korea are almost identical to the prices in the rest of the world, which shows that the Kimchi Premium was effectively defeated by the authorities. However, the officials of the Bank of Korea are still wary that there is some chance that this market will return as the demand for Bitcoin rises again.
Because of this, the authorities are already preparing for future issues that can be found as soon as the market starts booming again. This can elevate the prices in the local market again and restart the whole issue.
People from the Bank of Korea believe that the price gaps are artificial rather than only being different because of capital flows and the regulators are prepared to restart the work as soon as the Kimchi Premium rises once more because it could mean illegal foreign exchange transactions and be used in other illegal activities.
The bank is also raising public awareness of the issue towards premium prices to keep investors from making irrational investments based on a false hope that the prices will get better.