The “kimchi premium” is what’s known in the cryptocurrency world as the extra price margin over global bitcoin prices that occur on Korean cryptocurrency exchanges.
It is a measure of how much more South Koreans pay for bitcoin.
The spread, the difference between the price of bitcoin on South Korean and non-Korean crypto exchanges, is called the “kimchi premium”.
It’s named after kimchi, a popular Korean pickled side dish.
The “kimchi premium” first appeared in early 2016, according to researchers at the University of Calgary.
The paper explains that the reason why bitcoin prices drop during Asia’s trading hours is due to traders selling bitcoin at higher prices on crypto exchanges based in South Korea.
How it works is cryptocurrency traders purchase large amounts of bitcoin outside the Korean market (because the price is lower) and sell it back on the Korean market to gain a profit. The phenomenon is referred to as “arbitrage trading.”
At the start of 2017, there was no noticeable difference in the price of bitcoin between South Korea and the rest of the world, but by early 2018, the “kimchi premium” reached above 50%.
The spread reached its highest at 54.48% in January 2018.