In December 2017, several Chinese traders were arrested for various charges including money laundering for taking advantage of the high premium values of cryptocurrencies in the South Korean market.
The traders sold millions of dollars worth of bitcoin for profit, given the high premium rate of bitcoin in South Korea, and brought the money back to China.
Regularly, with the exception of a few days per week, the premium rate of the South Korean cryptocurrency exchange market increases to at least 20 percent. All cryptocurrencies listed on fiat-to-cryptocurrency exchanges in South Korea such as Bithumb and Korbit are at least 20 percent more expensive than other markets.
The disparity in the trading price of cryptocurrencies between South Korean and other leading regions is caused by the lack of volume in South Korea and the country’s extremely strict capital controls. It is not possible for foreigners to open bank accounts within the country without permanent residency visa, and it is also not legal to carry more than $10,000 worth of fiat currency outside of South Korea.
As such, taking advantage of the South Korean market’s premium rates is not possible. The crackdown on foreigners in trading cryptocurrencies will make it even harder for traders outside of the South Korean market to try take advantage of the arbitrage opportunity.
In South Korea, and on local exchanges, traders need three important components to trade fiat-to-cryptocurrency. A mobile phone, a bank account, and verification. Foreign traders that have claimed they have been able to open accounts on Bithumb are either not verified or not allowed to process fiat-to-cryptocurrency trades, because in order to do so, a South Korean bank account is necessary.
South Korean banks do not even provide bank accounts to the country’s citizens that do not have a stable source of income, job security, and wealth, because of the government’s crackdown on fraudulent bank accounts and offshore accounts.
Without a South Korean bank account--which is nearly impossible for a foreign trader to open without a permanent job or residential visa in South Korea--it is extremely difficult to send bitcoin or any other cryptocurrency to South Korea, take advantage of the premium rate, sell the cryptocurrency to South Korean won, and transfer it to elsewhere.
The only way it could work is to have a South Korean trader with a fully verified account as a proxy. But, that would be illegal. Sending money outside of South Korea without notifying the authorities, especially if the sum of the amount is big, is in violation of the South Korea financial authority’s capital controls and anti-money laundering (AML) policies.
There exists a clear reason as to why the premiums in the South Korean cryptocurrency exchange market are substantially higher than other regions. South Korean investors are not foolish to purchase cryptocurrency at higher rates, they simply do not have other choices.
Conclusively, taking advantage of the South Korean cryptocurrency exchange market could lead to one of these three situations: violation of AML policies and financial regulations, extremely inefficient process of physically bringing $10,000 out of the country every time an arbitrage occurs, or putting a South Korean proxy trader at risk of illicit trading and financial activity.
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