Bitcoin Price Hits $3,800 in South Korea: Factors of Arbitrage & Rising Demand

Bitcoin is being traded at over $3,800 in South Korea, with a 33.5 percent premium. Currently, global average bitcoin price is $2,514, which is closest to the bitcoin price listed by the US exchange market at $2,533.

On May 12, reported that bitcoin price surged past $2,070 in South Korea, when the global average bitcoin price was at around $1,800. During that time, the South Korean bitcoin exchange market demonstrated a 12.7 percent premium over other major markets such as the US, China and Japan.

Premium trading price of bitcoin in the South Korean bitcoin exchange market existed since 2015, with some of the market’s largest bitcoin exchanges including Bithumb and Korbit consistently demonstrating a 5 to 10 percent gap between exchanges in the US and China. That cap increased to 35 percent within 12 months, which currently is equivalent to $1,300.

At the time, analysts suggested that arbitrage opportunities exist in the South Korean market due to its size. Because of its low trading volume, limited number of investors and suppliers, analysts stated that the market is easier to manipulate and take advantage of in comparison to other global markets.

However, investors and traders started to re-evaluate the high premium trading price of bitcoin in the South Korean bitcoin exchange market as it overtook the Japanese and European bitcoin exchange markets to become the third-largest bitcoin exchange market in the world. With a 229 million daily trading volume, previous claims of analysts that South Korea was an easily manipulative market weren’t viable reasons behind the market’s high premium price.

On May 23, bitcoin investor and Adamant Research editor in chief Tuur Demeester stated that the chief information officer of South Korea’s 2nd largest exchange, Korbit, attributed the high premium price of bitcoin in the South Korean bitcoin exchange market to strict capital controls and Anti-Money Laundering (AML) policies.

“Talked to the chief information officer of [the South Korean exchange market’s] 2nd largest exchange, says that capital controls are making price arbitrage difficult,” explained Demeester, emphasizing that taking advantage over the South Korean bitcoin exchange market’s premium trading price is difficult.

KYC Squeeze

For small transactions below $10,000, bitcoin traders that are selling the digital currency on local bitcoin exchanges can surely take advantage of the arbitrage. However, when the amount goes past the $10,000 margin, exchanges require users to comply with strict Know Your Customer (KYC) policies that demand users to explain the source or origin of funds, purpose of deposit or withdrawals, connection to the linked bank account, reason for utilizing South Korean bitcoin exchanges, and more.

In most cases, even for small withdrawals, bitcoin exchanges require users to conduct face-to-face interviews and submit necessary documents to prove the account ownership. Also, because opening bank accounts in South Korea is difficult for foreigners, it is even harder for overseas investors or traders to take advantage of the South Korean bitcoin exchange market’s premium price.

A user of one of South Korea’s major bitcoin exchanges also told that he was required to carry out a face-to-face interview, submit documents to prove identity and financial information in order to trade small amounts of bitcoin within South Korea.

More importantly, in November of 2016, the government of South Korea strengthened AML policies to ensure that AML regulations cover a wider range of companies, individuals and organizations outside of certain sectors. Previously, AML policies specifically addressed casinos and financial institutions. The strengthened AML policies cover legal, accounting real estate sectors among other industries.

“[The government] will make efforts for the effective operation of international standards and systems by imposing anti-money laundering obligations on professionals in the non-finance industry and improving the system to identify actual owners of corporations,” said Financial Services Commission (FSC) chairman Yim Jong-yong.

Images from Shutterstock.

Last modified: March 4, 2021 4:56 PM

Joseph Young

Financial analyst based in Seoul, South Korea. Contributing regularly to CCN and Forbes. I have covered the stock market and bitcoin since 2013. Reach him on Twitter or LinkedIn.