Bitcoin Trade That Made Bankman-Fried Millions Makes a Comeback in South Korea
An arbitrage trade that is both profitable and operationally challenging is gaining popularity once again as bitcoin prices in South Korea now carry an average premium of 10%.
Currently, in Asian morning hours, bitcoin is trading just above $66,000 on most global exchanges. In South Korea, however, it is priced at over 93 million won on exchanges like Upbit, equivalent to over $71,000 based on current exchange rates.
This occurrence is known as the “Kimchi premium,” named after a popular Korean dish, which signifies the variance in bitcoin prices between local Korean exchanges and global markets.
The concept of the trade is straightforward: purchase bitcoin on a global exchange, send it to a Korean exchange, and sell it for a guaranteed 10% profit in Korean won.
Nevertheless, capitalizing on the gains from this arbitrage can be quite complex. South Korea enforces strict capital controls, making it difficult for foreigners to withdraw large sums of money from the country. This limitation prevents major funds from leveraging the trade, and smaller investors may lack the necessary infrastructure.
One notable individual who took advantage of the Kimchi premium was Sam Bankman-Fried, the founder of the now-defunct trading firm Alameda Research and FTX exchange. Bankman-Fried has claimed in various interviews that the premium soared to as high as 50% in 2019 and 2020, enabling his firm to generate up to a million dollars a day, according to CNBC.
On the other hand, some analysts believe that the premium indicates increased retail involvement and stems from considerable local demand for the asset.
“Korean retail investors are returning,” remarked Ki Young Ju, the founder of CryptoQuant, a firm specializing in on-chain analysis. “The Korea Premium Index (aka Kimchi Premium) serves as a clear indicator of retail FOMO.”
Bradley Park, CryptoQuant’s head of research, conveyed in a Telegram message to CoinDesk that certain traders were likely exploiting this trading opportunity.
“As the kimchi premium rises, traders will seize the arbitrage opportunity and repatriate their foreign holdings, leading to an increase in Upbit’s Bitcoin reserves,” Park explained. “Significant growth in these reserves was observed by the end of February.”
Bitcoin prices have remained stable over the last 24 hours, with the CoinDesk 20 index showing a 5.32% increase.
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