Bitcoin Price Surges Past $2,070 in South Korea, Arbitrage Opportunity?

May 12, 2017 12:42 UTC

As of May 12, bitcoin price in the South Korean exchange market is $2,076, approximately 12.7 percent higher than that of the global average price. To be exact, bitcoin is being traded on South Korean exchanges and trading platforms at a price that is $269 higher than the global average price of $1,807.

Ever since the debut of venture capital backed and regulated bitcoin exchanges including Korbit and Bithumb, the South Korean bitcoin exchange has presented excellent arbitrage opportunities for traders. South Korean bitcoin exchange have always demonstrated a high premium on their listed bitcoin prices and trading rates.

BTC/KRW chart from Korbit.

Such arbitrage opportunities were investigated by traders and cryptocurrency researchers by as early as 2015. In an analysis piece entitled “Investigating the Great Korean Bitcoin Arbitrage Opportunity,” a trader wrote:

“This kind of gap exists in other markets too, but the South Korean situation is atypical because it’s by no means a small or immature market. The trading volume on Bithumb (the larger of the two exchanges, with nearly twice the depth of its competitor Korbit) during the last 30 days has never dropped below 1,390BTC, with an average of about 3,000BTC (and a high of over 6,000).”

Considering that the South Korean exchange market is mature and developed, which is quite evident considering that it is the fourth largest bitcoin exchange market behind Japan, the US and China, one explanation that could rationally justify arbitrage opportunities and high premium bitcoin prices listed by local bitcoin exchanges is the presence of strict Know Your Customer (KYC) and Anti-Money Laundering (AML) policies.

According to bitcoin researcher Cryptonight, the author of the above-mentioned analytical blog post, South Korean businesses will likely be questioned by the local government and central bank if they attempt to purchase large amounts of bitcoin in overseas. Vice versa, if a foreign business was to sell large amounts of bitcoin on South Korean exchanges, it would be questioned by the local government in regard to the purpose of the funds.

“If a Korean-owned business were to attempt to buy Bitcoin in large quantities from overseas, they would be questioned and likely fined if they couldn’t properly explain the purpose of the purchase. And because Bitcoin has a “no value” in the eyes of the government, the notion that these businesses were sending millions of Korean won (or thousands of USD) overseas looks a lot like money-laundering,” explained Cryptonight.

Most importantly, although bitcoin is being traded at a premium rate that is substantially higher than most markets, it is extremely difficult for foreign or external traders to open bank accounts in South Korea. Hence, even if traders securely purchase bitcoin overseas and attempt to sell it on South Korean bitcoin exchanges, they wouldn’t be able to do so without opening South Korean bank accounts that are not easily accessible to foreigners.

Speaking to some users of Coinplug, local South Korean users told CCN that they were questioned by the bitcoin service provider where the funds came from and why they were cashing out bitcoins via bank ATMs.

I was asked by Coinplug to explicitly describe the source of my funds and why I decided to cash them out in South Korea via the Coinplug cash-out-by-ATM method. The startup temporarily disabled my account until I submitted screenshots of my passport and conducted a phone interview.

While bitcoin is being traded at a significantly higher rate in South Korea, it is difficult for external and foreign traders to take advantage of, considering the market’s strict AML policies.

Featured image from Shutterstock.

@iamjosephyoung

Hong Kong-Based Finance Analyst. Contributing regularly to CCN and Hacked. Providing unique insights into the fintech space since 2012.