Bitcoin Trade That Made Bankman-Fried Millions Experiencing Revival in South Korea
The “Kimchi premium” phenomenon, which refers to the difference in Bitcoin prices on Korean exchanges compared to global bourses, is making a comeback. Currently, Bitcoin is trading at a 10% premium in South Korea.
This arbitrage strategy, popularized by Sam Bankman-Fried, involves purchasing Bitcoin on a global exchange and selling it on a Korean exchange to profit risklessly in Korean won.
However, due to South Korea’s strict capital controls, actually realizing the gains from this trade is challenging. Nevertheless, the operationally difficult yet profitable arbitrage trade is gaining popularity once again as Bitcoin prices command an average 10% premium in South Korea.
During Asian morning hours, Bitcoin trades just above $66,000 on most global exchanges, while it commands over 93 million won on Korean exchanges such as Upbit, equivalent to over $71,000 at current exchange rates.
Referred to as the “Kimchi premium” after a popular Korean dish, this trading strategy is simple in theory: buy Bitcoin on a global exchange, transfer it to a Korean exchange, and sell it for a guaranteed 10% profit in Korean won.
An infamous example of someone who took advantage of the Kimchi premium was Sam Bankman-Fried, the founder of the now-bankrupt trading firm Alameda Research and FTX exchange. Bankman-Fried claimed that the premium was as high as 50% during 2019 and 2020, enabling his firm to earn up to a million dollars a day.
However, capitalizing on the arbitrage gains has become increasingly difficult. South Korea’s strict capital controls make it challenging for foreigners to withdraw large sums of money from the country. As a result, larger investment funds cannot fully exploit this trade, and smaller investors may lack the necessary infrastructure to participate.
Nevertheless, some experts argue that the premium indicates increased retail participation and reflects significant local demand for Bitcoin.
“Korean retail investors are getting back,” said Ki Young Ju, the founder of on-chain analysis firm CryptoQuant. “Korea Premium Index (a.k.a. Kimchi Premium) is a pure retail FOMO indicator.”
Bradley Park, CryptoQuant’s head of research, also noted that some traders are likely taking advantage of this trade. “As the Kimchi premium increases, traders will take advantage of the arbitrage opportunity and bring their overseas holdings home, which means Upbit’s Bitcoin reserves will increase,” he explained.
In the past 24 hours, Bitcoin prices remain unchanged. The CoinDesk 20, a broad-based liquid index, has increased by 5.32%.