Political Instability In South Korea Fuels Bitcoin ‘Kimchi Premium’ Surge

by

As an analyst with extensive experience in global financial markets and a particular interest in cryptocurrencies, I find the recent surge in South Korea’s Bitcoin ‘kimchi premium’ intriguing and concerning, all at once. The depreciating Korean won and the escalating political instability are driving South Koreans to invest in safe-haven assets like Bitcoin, which is causing the kimchi premium to soar.

In simple terms, the extra cost of buying Bitcoin in South Korea compared to other markets, known as the ‘Kimchi Premium’, has resurfaced due to the country’s political turmoil. This situation has caused the Korean Won to depreciate and increased the price of Bitcoin in the local cryptocurrency market.

Bitcoin Kimchi Premium Surges In South Korea

As per CryptoQuant CEO Ki Young Ju’s statement, the trading pair for Korean Won (KRW) and US Dollar (USD) has hit a 15-year low, indicating decreasing trust among South Koreans towards their national currency. With the won losing value, South Koreans are turning to new investment opportunities like Bitcoin as a means of preserving the buying power of their Korean Won during periods of economic instability.

In a post on X, Ju explained that South Korean crypto traders are increasingly converting KRW into cryptocurrencies such as Bitcoin and USD-pegged stablecoin USDT on the Upbit exchange, where BTC is trading at a premium of 3-5%. This price difference, commonly referred to as the Bitcoin ‘kimchi premium,’ occurs when BTC trades at a higher price on South Korean exchanges compared to global platforms.

Normally, the term “kimchi premium” refers to excessively high prices for cryptocurrencies in South Korea compared to global markets. This phenomenon is often caused by strong local demand, stricter regulations, and fewer opportunities for arbitrage. But in this case, it’s mainly fueled by the weakening Korean Won (KRW) as a result of increasing political instability within the country.

Currently, Bitcoin is being transacted in South Korea for around 145 million KRW (approximately $98,600), whereas on a global platform such as Binance, BTC trades at about $95,315. This price disparity showcases the influence of the “kimchi premium.

What’s Causing The KRW Decline?

The poor performance of a South Korean winner can be linked to continuous political turmoil that has escalated since December 3. On this day, the then-impeached former president Yoon Suk Yeol issued a martial law decree for six hours before rescinding it. Afterward, South Korea’s parliament impeached Han Duck-soo, who was both the country’s prime minister and acting president at the time.

These significant changes have stirred up strong reactions across worldwide markets, casting doubt on the reliability of South Korea’s democratic systems and sparking concern about potential political turmoil not seen in decades. As shown in the following monthly chart, the Korean Won (KRW) has dropped to its lowest point against the U.S. Dollar since March 2009.

In a different article about X, Jeff Park, who leads alpha strategies at Bitwise Asset Management, pointed out that South Korea’s current political upheaval revolves around accusations of electoral fraud and a decline in confidence in the nation’s National Election Commission (NEC). Park made the following comment:

The use of impeachment as a political tool, combined with allegations of foreign election interference, underscores the fragility of democracy in the face of disinformation. This is not just a Korean story; it’s a warning for democracies worldwide.

As a researcher, I’ve noticed an intriguing dynamic unfolding in South Korea’s cryptocurrency market. The recent political upheaval seems to have stirred quite a commotion, resulting in unprecedented trading volumes. At the moment of writing, Bitcoin is trading at approximately $95,315, marking a 0.2% decrease over the past 24 hours.

Read More

2024-12-28 08:11