Premiums of Infamous Bitcoin Trade Rise Amid Market Volatility
Market Bloodbath Causes Kimchi Premium to Surge
Premiums of an infamous bitcoin (BTC) trade popularized by Sam Bankman-Fried have popped back to significant levels amid a market bloodbath caused by rising U.S. tariffs, a market sign that some consider bearish in the short term.
Kimchi Premium Rises 10% Amid Market Volatility
The so-called Kimchi premium, or the difference in bitcoin prices on Korean exchanges compared to global bourses, rose just over 10% as of Asian morning hours Monday as BTC dropped 6% in the past 24 hours.
Arbitrage Opportunity Exploited by Traders
The arbitrage involves buying bitcoin on a global exchange and selling it on a Korean exchange for a riskless profit in Korean won. Pocketing the actual gains is difficult due to South Korea’s strict capital controls, but the premium is often used alongside other factors to gauge market sentiment.
Trading Volumes and Balances on Korean Exchanges Decline
Trading volumes on Korean exchanges Bithumb and Upbit have dropped significantly in the past week, indicating a drop in retail trading activity. Meanwhile, balances of dollar-margined stablecoin tether have been on the decline on both exchanges with instances of withdrawal delays.
Analyst Weighs in on Market Sentiment
“It seems that most retail investors are either already fully invested in spot or have withdrawn their funds to engage in DEX activities,” Seoul-based DNTV Research analyst Bradley Park told CoinDesk in a Telegram message.
Kimchi Premium Not a Positive Sign for Bitcoin
“In this situation, the kimchi premium doesn’t represent retail investors’ overbuying; rather, it appears to have risen as a passive response to the uncertainty of a strong dollar environment,” Park added.
“The kimchi premium can surge excessively when trading volume increases, but it can also help defend prices when the asset prices on overseas exchanges drop significantly,” Park said, adding that was likely “not a positive sign” in the short-term for bitcoin.
Conclusion
The rise of the Kimchi premium amid market volatility suggests that some traders are taking advantage of the arbitrage opportunity, but it may not be a positive sign for bitcoin in the short term. The decline in trading volumes and balances on Korean exchanges may indicate a drop in retail trading activity, and the uncertainty of a strong dollar environment may be contributing to the premium’s rise.
FAQs
What is the Kimchi premium?
The Kimchi premium is the difference in bitcoin prices on Korean exchanges compared to global bourses.
What is the arbitrage opportunity?
The arbitrage involves buying bitcoin on a global exchange and selling it on a Korean exchange for a riskless profit in Korean won.
Why is the Kimchi premium rising?
The Kimchi premium is rising due to the uncertainty of a strong dollar environment and the decline in trading volumes and balances on Korean exchanges.
What does the Kimchi premium indicate about market sentiment?
The Kimchi premium is often used alongside other factors to gauge market sentiment. In this case, it suggests that some traders are taking advantage of the arbitrage opportunity, but it may not be a positive sign for bitcoin in the short term.
