In the Bitcoin market, there is an indicator known as the Kimchi Premium, which is a difference in the price of Bitcoin sold in global exchanges in comparison to the price of Bitcoin sold in South Korean Exchanges.
This price difference can be utilized for arbitrage opportunities, especially for people in South Korea, where they can utilize the exchange rate of Korean WON to USD to maximize their profit through exchanges.
This article will explain the guide on how to utilize the exchange rate of Korean WON to USD as well as the Bitcoin Kimchi Premium through decentralized and centralized exchanges.
What is the Kimchi Premium
The Kimchi Premium is an indicator that became popular in 2016, where it shows the difference between Bitcoin’s price in global exchanges and on South Korean exchanges.
Premium refers to the fact that Bitcoin’s price is higher in South Korean exchanges compared to other crypto exchanges in the world.
The difference came from the fact that interest in Bitcoin is high in South Korea but investors and traders there have fewer options in terms of assets derivatives and other kinds of assets related to Bitcoin and crypto.
This is because of the regulations that are so tight in South Korea in terms of Bitcoin and the whole crypto market itself.
This is why to still give benefits to investors and traders there who have fewer options of assets compared to other countries, the exchanges and the government have allowed a price difference of Bitcoin in South Korea.
The premium usually goes up if the buying volume of Bitcoin in South Korea increases, where this will give traders and investors opportunities to do an arbitrage trade.
Most crypto market participants in South Korean exchanges are retailers who usually have more transaction frequency with little volume compared to institutional investors, which is why the premium often fluctuates significantly in a short period.
Arbitrage Strategy
These fluctuations are often used as opportunities for South Korean investors and traders as well as global investors and traders who have access to South Korean Crypto Exchanges.
To capitalize on this opportunity, the first step is to buy Bitcoin through either a global centralized exchange or a decentralized exchange.
South Korea is pretty tight with financial regulations, which is why oftentimes not many people can utilize this opportunity.
But, to bypass it, most traders and investors usually use a decentralized wallet so that the origin country of the money does not need to be reported as it came from a global decentralized wallet.
However, this does not guarantee that the Bitcoin sent will be received by the exchange as the user will need to comply with South Korea’s regulations.
To do this smoothly and comply with the regulations, a relationship with a native South Korean is needed to help process the account on the South Korean exchange.
Coming back to the strategy, once Bitcoin has been acquired, the next step is to create an account on a South Korean Centralized Exchange, preferably through a personally trusted South Korean Citizen, so that the money is in good hands.
After the account has been created, the next step is to send the Bitcoin from a decentralized wallet or a centralized global exchange to the South Korean exchange and then sell it in USD-backed stablecoins.
The next step is then to utilize the Korean WON to USD rate, where the owner of the fund can swap the USD-backed stablecoin into WON to maximize the exchange rate and have higher returns in WON.
The strategy usually works for South Korean citizens, but other citizens of the world could use the opportunity legally by asking for a South Korean citizen’s help.
However, when using this strategy outside South Korea, make sure to find a currency that has a lower value than WON to receive more in terms of fiat value.
Overall this strategy could be utilized by traders and investors to earn more money in terms of their native fiat currency.
However, the strategy can be risky as there are fluctuations involved in terms of Bitcon’s price as well as the fiat’s exchange rate.
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