Kimchi Premium Retreats! Bithumb Bitcoin Plunges Nearly 10% in a Short Time, Warning Bells Ringing at Highs?

In recent days, Bitcoin prices have experienced a phenomenon known as "kimchi premium," causing the price of Bitcoin on local exchanges in South Korea to decouple from the global market and surge to over $70,000. However, this abnormal situation has significantly decreased in the past few hours, which has also raised concerns among many investors. Historically, after the disappearance of the "kimchi premium," a market correction usually follows.

Kimchi Premium

The "Kimchi Premium" refers to the price difference between local South Korean exchanges and exchanges in other global regions. Normally, while the Bitcoin prices on global cryptocurrency exchanges are independent of each other, market makers or traders exploit the price difference between different exchanges for arbitrage opportunities, thereby equalizing the Bitcoin prices across exchanges. So why does the Kimchi Premium exist in South Korean exchanges?

The main reason may lie in the fact that global exchanges usually price Bitcoin in stablecoins, while South Korean exchanges mostly price in Korean Won. Additionally, unfriendly services for overseas users, long withdrawal times, and unstable withdrawal services make market makers reluctant to sell Bitcoin on South Korean exchanges. With increasing local demand for Bitcoin in South Korea, the Bitcoin price can deviate from the global market, resulting in the so-called Kimchi Premium.

Significant Drop in Premium in the Past Few Hours

However, as shown in the chart below, the Kimchi Premium has significantly decreased in the past few hours.

CEO of data analysis platform CryptoQuant, Ki Young Ju, commented on this saying:

"It seems that someone has finally found a way to arbitrage the Kimchi Premium. The trading volume on Upbit, the largest exchange in Korea, has exceeded that of Binance in the past 30 minutes. This phenomenon seems to be related to the Kimchi retracement or Upbit's announcement of suspending token deposits and withdrawals."

Additionally, Ki Young Ju also discovered through on-chain data that while the Bitcoin reserves on most exchanges are decreasing, the inflow of Bitcoin into Upbit exchange is increasing, indicating that whales are possibly transferring Bitcoin to Upbit to take advantage of the premium.

Kimchi Retracement Indicates Market Highs

In fact, the market has experienced severe Kimchi Premium twice before, at 63% in May 2017 and 47% in January 2018. What is more concerning is that according to data released by Arcane Research analyst Vetle Lunde, after reaching the peak of the Kimchi Premium, Bitcoin prices usually see a significant decline.

With the growing Kimchi premium, I did some digging on the BTC performance following previous spikes in the Korean BTC pair.

While it's impossible to say whether the Kimchi premium has peaked or if it will continue growing onwards, it makes me worried. pic.twitter.com/lx0YMQgLAr

— Vetle Lunde (@VetleLunde) April 5, 2021

With the significant decrease in the premium in the past few hours, if the Kimchi Premium has indeed peaked, does this mean that Bitcoin is set for a retracement?

Cryptocurrency analyst Joseph Young believes that the current situation in Bitcoin and the cryptocurrency market is different from 2017, and the Kimchi retracement does not necessarily indicate a market top, as history is unlikely to repeat itself.

Kimchi premium is exploding in South Korea.

Is this a signal of a top?

I don't think so yet.

Bitcoin and crypto are in a different place than in 2017. South Korea's crypto sector is regulated, with legislation coming into effect.

Sentiment is brighter than before.

— Joseph Young (@iamjosephyoung) April 6, 2021