[Korean Exclusive News]
Author: Shin Yi Jin, South Korea
◆ Warning on Cryptocurrencies Bubbles in Korea ◆
The difference between Bitcoin prices between local and international exchange markets is increasing as US’s representing cryptocurrencies information company excludes 3 Korean local exchange markets in their data collection and interpretation.
The bubbles of the “Kimchi Premium”, a phenomenon in which local cryptocurrencies exchange rate is higher than the international rates are expanding. There are worrying voices about these bubbles that once they are ‘popped’, it will bring about a huge impact to our society like the beginning of the year 2000 when the IT bubbles were collapsed.
As of January 9th 14:20, a Bitcoin is being exchanged at 23,510,000 WON at Bithumb, the biggest local exchange market. At the same time, the international rate is at 16,470,000 WON and this shows that there is about 42% of premium on that exchanged in Korean exchange market. This is a result of a combination of factors such as greater local demand for cryptocurrencies as compared to other countries and difficulty for establishing arbitrage trading between local and international exchange markets due to Korea’s current laws. This is because in practice the local cryptocurrency exchange markets are isolated like an ‘island’. The “Kimchi Premium” which remained at an average of 5~10% rose sharply from the end of 2017 and has hit 40~50% recently. Other than Bitcoin, most of cryptocurrencies exchanged in local markets such as Ethereum and Ripple has rates about 50% higher than those in international markets.
Personnel from the industry worried that “as “Kimchi Premium” is so high like nowadays, there is a much higher risk of loss due to “Reverse Premium” if the prices of cryptocurrencies fall drastically” and that “local investors will suffer from a tremendous loss” if it were to happen.
Under such situation, it has come to a point where Korean market rate information are excluded from international information websites. As of 8 January, cryptocurrency information website in US called Coin Market Cap (www.coinmarketcap.com) excluded Korean market rates from their statistics saying that the local markets’ data has deviated too much from the average. The Korean exchange markets excluded are Bithumb, Coinone and Cobit which are the three biggest markets in Korea. These markets are top markets established more than a year ago and they are included in the world top 10 exchange markets based on the amount of exchange. On their official twitter, coinmarketcap revealed that “(The reason why we excluded the Korean markets is because) it shows price deviation too serious as compared to other countries and arbitrage trading is limited”. They also added that “we are researching on better computational methods to provide an average that includes the Korean market”.
In the end, the decision by coin market cap was also due to the deviating local exchange rate from the international exchange rate as a result of the cryptocurrency speculation boom in Korea.
According to US WSJ, coin market cap blamed the “(Korean exchange market’s) serious price gap” for their decision during their email interview. WSJ analysed that Korean Financial Authority’s announcement for strict response towards local exchange market on the day before also had an impact on coin market caps reaction.
With the exclusion of Korean exchange market without prior notice, there was a steep rise in temporary panic-sell volumes in the international market
This is because foreign investors experienced a steep decline with the exclusion of the Korean exchange market’s market capitalisation. According to coin market cap, at 8:00 on 8 January, Bitcoin was exchanged at about 17230000 WON but at 15:20 it fell to about 15140000 WON.
Even under these circumstances, the prices of cryptocurrencies such as Bitcoin do not have much fluctuations in their transactions. The “Kimchi Premium” held still as well.
Kim Jin Hwa, the chairman of the Korean Blockchain Association noted that “the efforts by organisations such as the Korean Financial Authority to stablise the liquidity of the cryptocurrencies are unfavourably increasing the risks of exchange,” and “efforts by local market to solve the problems caused by the ‘bubbles’ within the market itself should also be included in the regulations”.
▶ “Kimchi Premium”: a new phrase that refers to a phenomenon in which Korean exchange market has much higher price than international markets. This is a resulting phenomenon of tremendous local demand for cryptocurrencies but limited supply.