The Bank of Korea Closely Keeps an Eye Out for the Kimchi Premium Effect
According to a recent report issued by South Korea’s Central Bank (The Bank Of Korea), the Kimchi Premium phenomenon might occur once more. The authority advises the continuous monitoring of the local digital assets markets in order to block the negative effects usually associated with Kimchi Premium and to further stabilize the local markets.
The Kimchi Premium, which takes its name from the popular South Korean dish, is a term used to describe the difference in prices of various cryptocurrencies on South Korean exchanges when compared to other international exchanges.
The phenomenon saw Korean investors having to pay up to 50% more for some of the most popular cryptocurrencies than other international counterparts. This whole situation is due to a sudden surge in demand for cryptocurrencies in the South Korean area.
“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,” Kim Dong-Sup, an official from the BOK’s Payment Systems Research department explained for a local news agency.
The phenomenon that took place earlier this year saw the central bank having to force crypto exchanges to introduce a real-name system, negatively affecting the privacy and anonymity usually associated with cryptos. This counteraction had the expected effect as cryptocurrency prices in the area stabilized and met those practiced by other global exchanges.
The official went on to further say that “the phenomenon stems from a lack of trade engagement from mainstream financial institutions, the additional cost of transactions due to the low scalability of the blockchain system, and delays in processing transactions in cases where Korean cryptocurrency exchanges experience server overload. These factors prevented an elastic increase in the supply of cryptocurrency assets from foreign traders’ arbitrage through Korean exchanges.”
Even though the price gap between South Korea exchange and other international ones is currently at 1,5%, the official warns that, if the country sees a similar surge in crypto demand, the Kimchi Premium phenomenon might occur once more.