There exists a strange correlation between market instability and bitcoin price premiums. In leading bitcoin exchange markets with the exception of the US, bitcoin premiums emerge when bitcoin’s volatility increases.
On June 12, bitcoin price achieved a new all-time high at $3,017 as demand from investor reached a peak on major bitcoin exchanges. However, after a massive sell-off by investors presuming a market correction, bitcoin price experienced a sharp 14 percent 24-hour drop, to around $2590. Within 24 hours since the fall, bitcoin price recovered in a relatively short period of time, to $2,750.
Amidst bitcoin’s volatile price trend, premiums in China, Japan and South Korea, the second, third and fourth largest bitcoin exchange markets reemerged. Although the premium rate demonstrated by the three markets is not as high as it once was, the three markets are trading bitcoin at around a 10 percent premium in comparison to the US, the largest bitcoin exchange market.
At the time of reporting, bitcoin is being traded in the US for around $2,680. In Japan, bitcoin is being traded with a $100 premium and in China and Japan, investors are trading bitcoin with a $200 premium.
On June 11, CCN reported that bitcoin price stabilized in the $2,900 region after a major market correction in late May, as the big three bitcoin exchanges in the Chinese market including OKCoin, Huobi and BTCC resumed withdrawals for local traders and investors.
The resumption of withdrawals for Chinese traders allowed the Chinese bitcoin exchange market to surpass Japan and South Korea to reclaim its position as the second largest market behind US. The Chinese market’s short-term recovery provided the global bitcoin exchange market with stability, dematerializing premiums in the Japanese and South Korean markets.
However, despite the Chinese market acting as a catalyst to stabilize the global market, bitcoin’s high fluctuation and volatility led major markets to swing wildly. Such instability led to the resurfacing of high premiums in major markets, particularly in South Korea.
In previous coverage, CCN provided extensive analysis on the premium rates in South Korea and Japan due to the two countries’ strict anti-money laundering (AML) policies and regulatory frameworks. Robust AML systems make it extremely difficult for anyone within and outside of the South Korean and Japanese markets to take advantage of bitcoin arbitrage opportunities without being flagged by regulatory agencies.
More to that, the instability of the entire cryptocurrency market and the underwhelming performance of the top 30 cryptocurrencies is increasing premium rates in Japan, China and South Korea. Usually, premiums increase when bitcoin price is lower because investors rush in to buy. In the three above mentioned markets, premiums have always existed, even when bitcoin price hit its peak at $3,000. Based on the mid-term bitcoin price trend, premiums on the three markets only dematerializes when the entire market stabilizes.
Additionally, during extreme fluctuations, bitcoin exchanges suffer from outages due to explosive customer demand. When bitcoin price achieved its all-time high price on June 13, bitcoin exchanges including Coinbase and BTC-E experienced outages as their servers could not handle increasing traffic.
An official statement from Coinbase read:
“Coinbase is currently experiencing high traffic & customers have receive(d) a ‘service unavailable’ message when visiting Coinbase.com.”
Featured image from Shutterstock.