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The Kimchi premium and bitcoin-cashing outlets

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  • Lee, Jangyoun
  • Oh, Taehee

Abstract

The Kimchi premium – the gap in cryptocurrency prices in Korean exchanges compared to US counterparts – soared up to 20.8% on 19 May 2021. However, due to capital controls and financial regulations on virtual currencies in South Korea, it seemed that most profits from the Kimchi premium were exploited by foreign arbitrageurs. Using confidential administrative data for 1,211 foreign exchange business institutions in South Korea, this study reveals that the Kimchi premium is positively related to the upsurge of overseas remittances to China, which used to be the world’s largest cryptocurrency mining hub until all cryptocurrency transactions were banned in 2017. Our findings imply that Chinese arbitrageurs use Korean financial institutions as bitcoin-cashing outlets, converting virtual currencies into fiat ones while the Kimchi premium was persistently high.

Suggested Citation

  • Lee, Jangyoun & Oh, Taehee, 2022. "The Kimchi premium and bitcoin-cashing outlets," Finance Research Letters, Elsevier, vol. 50(C).
    • Handle: RePEc:eee:finlet:v:50:y:2022:i:c:s1544612322004056
    DOI: 10.1016/j.frl.2022.103200
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    References listed on IDEAS

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    Cited by:

    1. Borri, Nicola & Shakhnov, Kirill, 2023. "Cryptomarket discounts," Journal of International Money and Finance, Elsevier, vol. 139(C).
    2. Ok, Hyunmin & Kim, Jinyong & Kim, Yongsik, 2023. "Is the Kimchi premium a speculative bubble?," Finance Research Letters, Elsevier, vol. 57(C).
    3. Seo, Myung Hwan & Koo, Bonsoo & Yang, Yangzhuoran Fin, 2024. "Nonlinear dynamics of Kimchi premium," Economic Modelling, Elsevier, vol. 135(C).

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    More about this item

    Keywords

    Kimchi premium; Cryptocurrency; Arbitrageurs; Overseas remittances;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • F38 - International Economics - - International Finance - - - International Financial Policy: Financial Transactions Tax; Capital Controls

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