Kim Yong-bum, the Vice Chairman of the Financial Services Commission and one of the main financial regulators in South Korea, expressed optimism towards the cryptocurrency market and the disappearance of the “Kimchi Premium” which exceeded 30% at the cryptocurrency market’s peak in December 2017.
Why Premiums Existed in the First Place
Merely seven months ago, major cryptocurrencies such as Bitcoin, Ethereum, and small digital assets were being traded with a massive premium in the South Korean cryptocurrency exchange market. This was due to the rapidly increasing demand and the limited supply of digital assets.
Previously, in an interview with Nathaniel Poppers from the New York Times, Tony Lyu, the CEO of Korbit, the third largest cryptocurrency exchange in the country, described the traditional finance market of South Korea as a copper pan; when the demand is high, it heats up very fast and when the demand drops, it cools down unnecessarily fast. Lyu stated:
“Word just spreads really fast in Korea. Once people are invested, they want everyone else to join the party. There’s been this huge, almost a community movement around this,”
As virtually every mainstream media outlet and publication started to consistently report about the cryptocurrency industry, the demand from retail investors continued to spike.
The premium of cryptocurrencies in South Korea exacerbated due to the country’s strict capital controls. Even if foreigners could buy cryptocurrencies on platforms like Coinbase and sell it in South Korea, the funds can’t be withdrawn without a local bank account. These strict capital controls banned foreigners from obtaining South Korean bank accounts, preventing them from taking advantage of the market and in turn, the premium declined.
When the price of Bitcoin achieved its all-time high at around $19,500, the price surpassed $25,000 in South Korea. On average, the price of cryptocurrencies in South Korea was about 25% higher, especially for cryptocurrencies popular in South Korea like Ripple and Bitcoin Cash.
Optimistic Comments From Financial Regulator
At a press conference, FSC vice chairman Kim said in a statement translated from Korean by CryptoSlate:
“The government’s practical policies led the ‘Kimchi Premium’ to disappear in South Korea. At its peak, the ‘Kimchi Premium” in the local cryptocurrency exchange market reached 50 percent, due to an unusual spike in demand and speculation. As of current, the price of cryptocurrencies is nearly identical to other markets, demonstrating stability in the South Korean cryptocurrency market.”
More importantly, Kim emphasized that the cryptocurrency sector has become more legitimate and trustworthy with improved money laundering prevention systems and guidelines in place.
“Banks are now able to verify cryptocurrency users and investors because of the government’s decision to remove anonymous trading and accounts. The government has also imposed a new money laundering prevention guideline to protect investors and to prevent criminals from utilizing cryptocurrencies to launder money.”
Vice chairman Kim also encouraged other leading economies like Japan and the US that operate major cryptocurrency markets to create unified regulations to standardize policies pertaining to cryptocurrency exchanges and investors.
For many years, the government of South Korea had been reluctant towards regulating the cryptocurrency market because of fear that investors would consider it as an act of legitimizing the market.
Nonetheless, various government officials and agencies including the Financial Services Commission acknowledged that it is time to properly regulate the South Korea cryptocurrency market to ensure local companies and businesses can grow at a rapid rate.
Cover Photo by Bundo Kim on Unsplash