BOA Report says Kimchi Premium Result of Capital Flow Control

Kimchi premium, the Bitcoin price difference between the international market and the South Korean market rose to $4,000 yesterday after a red crypto day. A recent Bank of America report suggests that the Bitcoin price premium in the Korean market is a result of capital flow control put by the government. At present, the purchases of foreign currency are capped at 50,000 annually per person, which might be another reason for investors to look for alternatives like Bitcoin. The report noted,

“The onshore price for cryptocurrencies in Korea is persistently above international prices suggesting this to be a result of effective capital control that prevents effective arbitrage of onshore and offshore prices,”

Kimchi premium is often seen as a bullish trend for the market as it indicates a growing demand among the investors. The price premium was on the decline recently primarily because of the long consolidation phase of the top cryptocurrency since last ATH, also the authorities are tightening regulations around the crypto market in South Korea.

South Korea is seen as one of the most progressive nations when it comes to crypto regulations as the country has a fully regulated market and the authorities have also proposed a 20% tax on crypto gains.

How Kimchi Premium Impact Bitcoin Markets?

Kimchi premium which is currently at $4,000 has risen as high as $8,000 and is often used by traders in South Korea for arbitrage trade. To make the benefit from the premium price, a trader would require to first buy Bitcoin at a higher price on the South Korean exchange then sell it for USDT on an exchange to make the profit.

Historically a high Kimchi premium has also marked the potential top for the market as was the case in 2018 when the premium peaked to an ATH. Just like Kimchi premium, Coinbase premium has become a similar bullish indicator to reflect market sentiment.

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