Study Shows China Remittances Are Strongly Linked to South Korea’s “Kimchi Premium”

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According to a recently published report from December 2022, South Korea’s “kimchi premium,” or the difference in cryptocurrency valuations between Korean exchanges and Western trading platforms, is closely related to a rise in remittances to China.

Strong Correlation Found Between Overseas Remittances to China and South Korea’s “Kimchi Premium”

According to research done by Taehee Oh of the Bank of Korea and Jangyoun Lee, an assistant professor at Incheon National University, the price of kimchi in South Korea appears to be highly connected with an increase in remittances sent from abroad to China.

The researchers point out that the kimchi premium first appeared in South Korea in 2016, a year with a high demand for bitcoin among Korean investors but a dearth of available BTC.

The term “kimchi premium” basically describes how the cost of bitcoin and other cryptocurrencies is much greater in South Korea than it is on Western exchanges.

The researchers explained that between January 2016 and May 2021, their team examined financial data pertaining to remittances sent from abroad to China from roughly 1,211 foreign exchange enterprises.

The study’s authors noted that on May 19, 2021, the kimchi premium increased by more than 20% higher than the price on Western cryptocurrency trading platforms. However, the kimchi premium reappeared during the first quarter of 2021.

Our results suggest that when the kimchi premium was persistently large, Chinese arbitrageurs used Korean financial institutions as bitcoin cashing outlets, changing virtual currency into fiat ones.

The study’s authors contend that developments in China were responsible for a sizable share of premium increases and the rise of foreign arbitrageurs.

The study describes, for instance, how South Korea and nations like the United States decided to regulate the business while China banned cryptocurrencies.

The kimchi premium still exists today, and on January 9, 2023, at 9:00 p.m. Eastern Time, Bitcoin (BTC) was trading between $17,427 and $17,437 per unit on Upbit and Bithumb, two of South Korea’s top cryptocurrency exchanges.

BTC has occasionally seen high premiums on the Japanese cryptocurrency exchange market as well.

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