Political Instability In South Korea Fuels Bitcoin ‘Kimchi Premium’ Surge

The Bitcoin (BTC) ‘kimchi premium’ has returned to South Korea’s cryptocurrency market as the country grapples with political instability. This has led to a weakened Korean won (KRW) and a higher price for the leading cryptocurrency.

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Bitcoin Kimchi Premium Surges In South Korea

According to CryptoQuant CEO Ki Young Ju, the KRW-USD trading pair has reached a 15-year low, reflecting dwindling confidence among South Koreans in their fiat currency. The depreciating won has driven South Koreans to invest in emerging assets like Bitcoin to safeguard the purchasing power of their KRW during times of economic uncertainty.

In a post on X, Ju explained that South Korean crypto traders are increasingly converting KRW into cryptocurrencies such as Bitcoin and USD-pegged stablecoin USDT on the Upbit exchange, where BTC is trading at a premium of 3-5%. This price difference, commonly referred to as the Bitcoin ‘kimchi premium,’ occurs when BTC trades at a higher price on South Korean exchanges compared to global platforms.

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Typically, the so-called kimchi premium arises due to high local demand, increasing regulatory barriers, and limited arbitrage opportunities in South Korea’s cryptocurrency market. However, in this instance the premium is primarily driven by the weakening KRW due to rising political turmoil in the country.

At the time of writing, Bitcoin is trading in South Korea for 145,000,000 KRW or approximately $98,600, while on a global exchange like Binance, BTC is trading at $95,315. The difference between these platforms highlights the impact of the kimchi premium.

What’s Causing The KRW Decline?

The South Korean won’s decline can be attributed to ongoing political unrest, which has intensified since December 3. On this date, the now-impeached, former president Yoon Suk Yeol declared martial law for six hours before reversing the decision. Following this, South Korea’s parliament impeached Han Duck-soo, the country’s prime minister and acting president.

These dramatic developments have sent shockwaves through global markets, undermining confidence in South Korea’s democratic institutions and raising fears of the country facing its worst political crisis in decades. The monthly chart below illustrates how the KRW has plunged to its lowest value against the USD since March 2009.

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In a separate post on X, Jeff Park, head of alpha strategies at investment manager Bitwise, highlighted that South Korea’s political turmoil centers on allegations of election fraud and a loss of trust in the country’s National Election Commission (NEC). Park commented:

The use of impeachment as a political tool, combined with allegations of foreign election interference, underscores the fragility of democracy in the face of disinformation. This is not just a Korean story; it’s a warning for democracies worldwide.

The political unrest in South Korea has sent its cryptocurrency market into a frenzy, leading to record-breaking trading volumes. At press time, BTC trades at $95,315, down 0.2% in the past 24 hours.

Featured Image from Unsplash.com, Charts from X and TradingView.com