Researchers from the Bank of Korea (BOK) note that barriers to the flow of cryptocurrencies are leading to crypto price gaps. The comments come at a time when the BOK is leading the campaign targeting crypto price gaps in the country.
Kimchi premium
Dubbed the “kimchi premium”, the practice is rampant in South Korea’s currency market. Basically, the kimchi premium is “the gap in cryptocurrency prices in South Korean exchanges compared to foreign exchanges,” Investopedia writes. In the country, the phenomenon is greatly predominant in the price of Bitcoin.
There were reports in the country earlier this year that digital assets traded higher locally than abroad. The BOK ascribes the incident to “speculative investment” that is the norm in Korean currency markets. Further, the BOK noted at that time that sharp demand in the face of limited supply exacerbated the situation.
BOK leading campaign targeting crypto price gaps in South Korea
In June this year, Kim Yong-bum, head of Korea’s Financial Services Commission noted the government efforts against the practice. At the time, local media quoted him saying:
“The government’s practical policies led the ‘Kimchi Premium’ to disappear in South Korea. At its peak, the ‘Kimchi Premium’ in the local cryptocurrency exchange market reached 50 percent, due to an unusual spike in demand and speculation. As of now, the price of cryptocurrencies is nearly identical to other markets, demonstrating stability in the South Korean cryptocurrency market.”
Investors could make huge losses
However, the kimchi premium seems to defiantly stick around, reports Yonhap News. In the recent BOK report, the researchers acknowledge the presence of kimchi premium in the country’s crypto markets today. In part, the report reads:
“Price gaps between domestic and overseas cryptographic assets have occurred repeatedly, and technical and institutional factors that negatively affect smooth capital flows are difficult to be resolved in the short term.”
In response, the central bank is leading the campaign targeting crypto price gaps by raising awareness. The institution wants to stop investors from making irrational investments based on a false hope of a price increase. The BOK further adds that there are chances the kimchi premium might lead to losses on gigantic scales.