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Batch exchange defeated "speculative power" Korean kimchi premium signal appeared



The atmosphere of currency speculation is strong, and the scale of digital asset transactions has soared. The kimchi premium in South Korea, the former "speculative country", has reappeared. How to interpret it?

In the South Korean market, on the one hand, there are violent fluctuations in the "kimchi premium" of Bitcoin, and on the other hand, there are batch withdrawals from domestic and foreign exchanges.

On April 7, on Upbit, an active-zce exchange in South Korea, the price of BTC was once as high as more than 71,000 US dollars, and the "kimchi premium" reached 23%, which exceeded the value and hit a record high. The kimchi premium, which represents the difference between the price of bitcoin on South Korean exchanges and spot rates on other global exchanges, eased in the ensuing hours.

As early as 2017 to 2018, the "kimchi premium" began with the rise of digital currencies at that time. In the last round of bull market, the number of people participating in currency speculation in South Korea showed a rapid surge. In January 2018, the premium of ETH in South Korea reached an astonishing 53%, marking the peak of the "kimchi premium".

Judging from a set of data at that time, as a country whose economic volume is much smaller than that of the United States, China, and Japan, South Korea’s Bitcoin transaction volume in the fourth quarter of 2018 accounted for up to 50% of legal currency, and the number of people involved in currency speculation reached 10% of the total population. Based on this, South Korea was once labeled as a "speculative power".

In this round of bull market, the enthusiasm of the Korean market remains undiminished. The term "Crypto Boom" is widely used in local Korean media. In a few days in mid-March 2021, according to CoinMarketCap data, the trading volume of the South Korean digital currency market once exceeded the average daily trading volume of the country's stock market.

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CoinMarketCap (CMC) also removed several South Korean exchanges from the platform’s calculation of Bitcoin prices some time ago due to excessive premiums. The platform official stated that the data will be re-added after the price of the Korean exchange stabilizes.

What is happening in the South Korean crypto market?

Behind Kimchi Premium

According to data from the South Korean digital currency trading industry in mid-March, the comprehensive market index (UBMI) of the exchange "UPbit" is nearly 10 times since the index (1000 points) was listed on October 1, 2017.

This means that the total market value of digital currencies listed on Korean exchanges has increased tenfold in the past three years and five months.

In South Korea, the 28-year pattern of exchanges is particularly obvious. Upbit currently has the highest average daily trading volume, and its trading volume is more than three times that of the other four well-known trading platforms such as Bithumb, Coinone, GoPax, and Korbit. According to data, recently, Upbit's huge transaction volume has directly boosted the total transaction volume of the Korean market.

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According to statistics, in March, the recent total trading volume of the five South Korean exchanges was approximately US$13.89 billion, much higher than the US$5.75 billion of the six US exchanges in the same period. Considering the population base, the transaction volume in the Korean market has reached a relatively high level in the world recently.

When the "kimchi premium" rose again, the community began to interpret this signal. Quest Capital CEO Ming Qu interpreted the current situation of the Korean market for Blocklike:

"The current Korean market is indeed very enthusiastic, and there is also a premium for kimchi. There are some reasons for this: First, the Korean exchange does not use USDT, and cannot deposit and withdraw funds through USDT, and can only use Korean won for transactions. This has led to It is actually very difficult for users to transfer their money in Korean exchanges to other places, and similarly, it is extremely difficult for foreigners to earn this premium.”

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"Second, within the country, the legal currency channel means whether it can get government support and whether it can reach real Korean investors. Domestic exchanges have compliance requirements, so they must support legal currency exchanges. This is also the case for many overseas transactions. One of the main reasons for the establishment of the "Korea Station" but the silence in the end."

"Thirdly, South Korea will soon face the problem of digital currency tax payment. The time for the official decree may have to wait, but the tax collection has been confirmed, which has also brought a great impact on the Korean market."

Quest Capital CEO Ming Qu remains optimistic about the current Korean market. The trend of compliance is beneficial to the Korean digital currency market. He believes that truly technically capable localization projects will inevitably highlight their value.

Since mid-March, the proportion of bitcoin-to-fiat transactions has been increasing. According to Coinhills’ data today, the U.S. dollar accounts for 79.63% of the current bitcoin-to-fiat transactions, still ranking first; the Korean won’s share has risen to 7.92%, ranking second; the euro’s share is 4.53%, ranking third; The fourth and fifth places are the Japanese yen (4.03%) and the Turkish lira (1.59%).

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(Figure: Coinhills data on April 9)

In the face of the "kimchi premium" debate, digital currency analyst Joseph Young also tweeted to deny the claim that the Korean kimchi premium heralds the peak of BTC prices. He believes that Bitcoin and digital currencies are not the same as they were in 2017. South Korea’s digital currency sector is regulated and the law is about to come into effect, and market sentiment is more optimistic than before.

"Compliance" and "Closed": Batch Exchange Exits

South Korea's regulation has become stricter, and it has stepped out of a digital currency regulatory situation that is very similar to that of Japan.

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In 2021, with the increasing popularity of digital currencies in the market, South Korea's regulatory policies will continue to increase.

On March 4, 2020, the South Korean government passed the "Special Gold Act" on compliant exchanges (laws on the reporting and utilization of specific financial transaction information), including a digital currency exchange license system. And the regulations will be implemented on March 25, 2021, and exchanges that do not comply with the regulations will not be able to continue to operate. In addition, South Korea has also emphasized the details of "anti-money laundering". The South Korean Financial Services Commission is seeking legal amendments to force digital asset service providers to report the names of their customers.

In October of the same year, the Financial Services Commission promulgated the relevant specific implementation rules of the "Special Gold Act" (referred to as the "Execution Order"), clearly stating that Korean exchanges are not allowed to share liquidity with any other exchanges. This rule has become a bottleneck for many overseas trading platforms to enter the Korean market.

In 2020, when the market industry has turned around, South Korea is still one of the important markets for digital currencies in Asia. Summarizing South Korea’s digital currency supervision process last year, it can be seen that South Korea has a positive attitude towards the relevant research on the issuance of central bank digital currency and cross-border cooperation, and the supervision of digital currency issuance and trading has gradually become clear.

From the perspective of regulatory agencies, last year, the Korean Ministry of Finance and the Korean Financial Services Commission issued relevant regulatory rules, repeatedly mentioning anti-money laundering, taxation, etc., and are committed to actively implementing regulatory licenses. In addition to the clarification of the regulatory framework, the South Korean government also places special emphasis on the application of blockchain technology and provides corresponding subsidies.

This year, South Korea has a strong atmosphere for currency speculation, and the scale of digital asset transactions has soared.

Corresponding to the soaring volume of digital currency transactions is the increasing number of tax evaders and the number of digital assets being used for money laundering and other illegal activities. The problems encountered by South Korea are not much different from those encountered by other Asian countries.

In February of this year, according to public information, the South Korean government will classify the income generated by investing in digital assets as other income from next year and tax it at a rate of 20% (the basic deduction is 2.5 million won). Finally the dust settled.

In late March, an amendment to the declaration of digital currency and the use of specific financial transaction information was officially launched. South Korea has implemented the "real-name system for digital currency transactions" on March 25 this year, involving digital assets including digital currencies. Enterprises must report their transactions to government agencies, comply with anti-money laundering regulations, and urge existing practitioners to complete the declaration within the prescribed time. From 2022, overseas exchanges are also required to declare.

Based on the tightening of policies, many Korean local trading platforms have begun to withdraw in batches. According to Korean media reports, at least 10 digital currency exchanges in South Korea are on the verge of bankruptcy. After the introduction of the transaction real-name system requirements, many exchanges cannot maintain operations due to the need to meet the requirements.

Recently, the South Korean government has taken action against illegal digital currency activities. In a conference on digital assets held by South Korea’s Financial Services Commission, Ministry of Finance, Ministry of Justice and other regulators, the authorities stated that they will strictly crack down on illegal activities related to transactions, including manipulating market prices, money laundering and tax evasion using digital assets. It also hinted that it will increase the monitoring of digital currency transactions to facilitate the collection of income tax on digital asset gains. The meeting led to a drop in Bitcoin’s “kimchi premium” that day. In the amendment at the end of March, it also clearly requires companies in the industry to thoroughly check the identity of customers and report suspicious transactions.

According to public information, the current major digital currency exchanges in South Korea include UPbit, Bithumb, Coinone and Korbit. These four exchanges obtained the right to open accounts in commercial banks earlier. With more and more investors pouring into the market, South Korea’s digital currency has also reached such a consensus: the South Korean government and commercial banks are strictly controlling the account opening qualifications of the exchanges that will enter later, which has also become a non-head transaction in South Korea. A major pain point when running a business.

Quest Capital CEO Ming Qu believes that the regulatory trend in South Korea is very similar to that in Japan. In the future, the exchange bank account opening qualifications, related licenses and policy supervision will continue to be stricter for a long time.

Another analysis shows that in the first quarter of 2021, Korean investors have a more obvious short-term investment tendency of chasing ups and downs. In high-volatility markets, BTC on Korean exchanges is at a discount compared to U.S. and Chinese exchanges; in low-volatility markets, BTC on Korean exchanges is more likely to be at a premium compared to U.S. and Chinese exchanges.

At present, the trading assets in the South Korean market are relatively concentrated, and the total trading volume of the top ten assets accounted for more than 60%. South Korea has a strong preference for mainstream assets with strong cross-regional consensus, which is similar to the US market, but much higher. in the Chinese market. Recently, NFT concepts, financial application currencies such as payment and lending, logistics, human resources and other application currencies have become more popular in the market.

With the improvement of the country's digital currency trading compliance, South Korea may become another case in Asia in terms of real-name system and regulatory policies for exchanges. Under the development of compliance, we still need to observe for a long time what new enlightenment the "kimchi premium" can bring to the market.


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