• A newly-released study published in December 2022 reveals that South Korea’s „kimchi premium“ is strongly linked to an influx of international remittances to China.
• The research team analyzed financial data concerning overseas remittances to China from approximately 1,211 foreign exchange businesses between Jan. 2016 and May 2021.
• The researchers noted that on May 19, 2021, the kimchi premium jumped by more than 20% higher than the price on Western cryptocurrency trading platforms.
A new study conducted by Jangyoun Lee, an assistant professor at Incheon National University, and Taehee Oh of the Bank of Korea, has revealed a strong correlation between South Korea’s „kimchi premium“ and the influx of international remittances to China. The kimchi premium refers to the divergence in cryptocurrency valuations on Korean exchanges compared to Western trading platforms.
The team analyzed financial data concerning overseas remittances to China from approximately 1,211 foreign exchange businesses between January 2016 and May 2021. It was found that the first instance of the kimchi premium in South Korea occurred in 2016, when there was high demand for bitcoin among Korean investors but a limited supply of BTC. This caused the premium to peak at close to 55% before subsiding.
However, the kimchi premium reemerged during the first quarter of 2021, and the study’s authors noted that on May 19, 2021, the premium jumped by more than 20% higher than the price on Western cryptocurrency trading platforms. This indicates that Chinese arbitrageurs were using Korean financial institutions as bitcoin-cashing outlets, converting virtual currencies into cash.
The study’s authors concluded that the kimchi premium is strongly associated with increased international remittances to China, as it serves as a driving factor for Chinese investors to purchase cryptocurrencies in South Korea rather than in other countries. This is due to the fact that the kimchi premium offers a much higher return for their investments.
Overall, the study provides further evidence that South Korea’s kimchi premium is strongly linked to international remittances to China. This could have significant implications for the cryptocurrency market, as it serves as an indicator of the potential profitability of investing in virtual currencies.