Kimchi premium returns as Asian traders stack Bitcoin

New research from Binance and Diar shows that traders from South Korea and other Asian countries are once again paying more for Bitcoin than the rest of the world.

A powerful indicator?

At the height of 2017’s cryptocurrency buying frenzy, the kimchi premium was so pronounced that CoinmarketCap removed South Korean exchanges from its market cap index. Analysts at the Bank of Korea put this price discrepancy down to a number of factors, including strict Anti-Money Laundering policies which prevented arbitrageurs from closing the gap.

In the following bear market, the kimchi premium proved itself to be a powerful indicator of negative as well as positive sentiment, with South Korean crypto prices slipping slightly below the worldwide average as Bitcoin fell.

Now in the wake of recent bullish price action, Binance research has revealed that the BTC/KRW pair has been trading at a premium of up to five percent on the Bithumb exchange — hitting a seven month high.

Across the sea in Japan, Bitcoin has also historically traded at a premium, and as the price has risen in recent weeks, this gap has also widened. According to Binance, leveraged $BTC on bitFlyer — the Japanese equivalent of BitMEX — has traded at a premium of up to five percent over dollar-denominated spot bitcoin since mid-May 2019.

Safe haven demand

As relatively isolated cryptocurrency hubs, the premium paid by those trading against the yen and the won can be explained by the obstacles faced by arbitrageurs, and the increased demand that stems from wider awareness of crypto in these countries.

But the situation in China is very different. Bitcoin remains essentially banned in the mainland, and the autonomous territory of Hong Kong is hardly a cryptocurrency mecca, with strict regulations taken from the world of securities.

And yet, in both the mainland and Hong Kong, Bitcoin is trading at a premium.

The recent extradition protests, suggests eToro’s senior market analyst Mati Greenspan, have helped push up the price of Bitcoin against the Hong Kong dollar, with traders in the city paying a premium of over $100.

As Greenspan suggests, this is likely to be a reflection of activity in the legacy markets, where high-net-worth individuals are reportedly moving assets offshore over concerns about changes in the law.

Across the border in mainland China, measuring interest is more difficult. And in the absence of information on bitcoin/yuan prices, both Binance and Diar have assessed the activity of Tether, which recently hit a 3.2 percent premium against the yuan.

According to Binance, China’s premium on Tether traded over-the-counter (OTC) — which is the primary means of buying Bitcoin under the ban — has risen to its highest level in 2019.

Data from Diar tells a similar story. The firm looked into on-chain Tether activity and found extremely high levels of activity, with exchanges targeting Chinese traders accounting for 39 percent of all known on-chain value transacted in the coin.

This appears to be increasing over time, with the country responsible for a staggering 60 percent of value transacted in Tether in 2019, compared to a meagre 3 percent contributed by the United States.

"Massive amounts of funds are being moved into exchanges in China for no other purpose than trading," says Diar. "Even a single trade of Tethers moved onto Chinese exchanges would equal daily volumes equivalent to $215Mn for the month of April, which is three times as much as Coinbase and on par with Binance. This does not even take into account funds sitting on the exchanges."

Fears surrounding the yuan — which has been found to have an inverse correlation with Bitcoin — are suspected by some analysts to be fueling demand for the cryptocurrency which can be used to store wealth and circumvent local capital controls. It suggests that Bitcoin is growing in legitimacy as an unstoppable, uncensorable store of wealth all over the world.