Korean Meme Mania

The Kimchi Premium is a weekly series that looks back at the hottest topics in the Korean crypto community

I hope everyone is making life changing money onchain. Are you not? Maybe Koreans are dumping on you.

I think I have seen dozens of PnL screenshots of hundreds of thousands, even millions of dollars in profit. Even in person, I’m hearing rumors from not-so-distant-people-I-know making some good money. Yeah, if you’re not trading memes, you’re not making money.

The public perception until now was that Koreans only trade on centralized exchanges, mostly on Upbit. That partially true. When 1000x opportunities are onchain, what is the use of a centralized exchange?

But still when you look at $DOGE and $SHIB, Upbit ranks as the second biggest spot market.

The kimchi hits different this time

But hey.. where is the premium? For the last few weeks I have been talking about Kimchi Premium as a sentiment index. If the Kimchi Premium goes +10%, time to slowly stable up. But this time it seems different. I’m seeing people checking their Binance portfolios in the subway and friends are asking about DOGE.

But why no 10% Kimchi Premium?

Bitcoin is $90k. That is unreal if you think about it. But this chart just doesn’t make any sense. How could this be?

Are Koreans not buying? No. Recent Upbit listings were all legendary tier pumps.

Are new users not coming in? No. Korean crypto apps topped the appstore recently.

Are we better at arbitraging? No. If that was true, why weren’t we better earlier this year?

Wait… actually we DO have better ways to arbitrage the Kimchi Premium. The guys at Presto Research did a great job on this one:

While it could simply be that “we’re still early,” Upbit recently recorded over $18 billion in trading volume—significantly higher than March 2024’s $14 billion when the Kimchi premium hit 10% and maintained a steady 5%. So why isn’t there a premium now?

So what changed between March 2024 and now? I believe the primary reasons are: 1) the listing of $USDT, 2) macro market conditions, and 3) the implementation of “The Act on the Protection of Virtual Asset Users.” While Bithumb listed $USDT in December 2023, Upbit followed relatively recently in June 2024. Before this, most Korean investors used $TRX or $XRP to transfer crypto from Korean exchanges to global platforms like Binance, Bybit, and OKX. With the listing of $USDT, it is now much easier for people to arbitrage the premium and invest directly in dollar.

Especially with a weaker KRW and the Korean stock market significantly underperforming both cryptocurrencies and the U.S. stock market, there’s heightened interest in dollar investments. This has led to increased trading of $USDT, which now accounts for approximately 9% of the market share, up from just 2.6% in December. It’s important to note that most pairs on Korean exchanges are traded in KRW (e.g., BTC/KRW, ETH/KRW), not in stablecoins. This means much of the $USDT trading volume comes from the USDT/KRW pair.

With that, one of the easiest ways for Koreans to earn money historically has been through Kimchi premium trading. This involves buying $USDT, transferring it to foreign exchanges, earning yields, and returning to the Korean market when there’s a Kimchi premium (while also earning yields on KRW following the act’s implementation + Bithumb's free trading fee event) - or simply just buying $USDT when kimchi premium is low and sell when its high. This trade has become far more active, which I believe is suppressing the Kimchi premium.

- Min Jung on X (read full article here)

Holy shit. I have not thought of this until now. So, my assumption that the Kimchi Premium will erode as a bull market indicator after institutional accounts are enabled is now a totally obsolete hypothesis. The Kimchi Premium might have no meaning at all!

But is that a good thing

I don’t know. For Koreans, a lower Kimchi Premium means fairer prices. For the broader market, they lose one indicator for top signals.

But I guess Koreans are losing bit by bit in different terms. Just today, the Financial Supervisory Service (FSS) suggested that they will allow exchanges to freeze crypto exchange accounts without alerting users.

According to the The Act on the Protection of Virtual Asset Users, exchanges must disclose reasons for freezing an account before they make any action. But the FSS wants to sneak in some “special circumstances” so exchanges can preemptively freeze accounts so they can react in dire situations like hacks, fraud, and of course your favorite money laundering attempts.

The principle is to provide advance notice, but they emphasized that the predictability of account blocking reasons and the purpose and intent of prior notification should be comprehensively considered.

The same applies when administrative agencies like the National Tax Service or investigative authorities request account blocking and ask for a delay in notification to achieve their investigative purposes.

The FSS emphasized that advance notice must be provided if it is possible after careful consideration, or if there are no unavoidable circumstances preventing it.

Wait wtf? So they are not only allowing these preemptive account freezes to protect consumers, but also protect national interest? Wow who would have thought. One more reason to not leave your money on Korean exchanges. Imagine making a 5x on a random shitcoin on Upbit then getting your money froze by the IRS.

Say no more:

Paju City in Gyeonggi Province has announced plans to become the first local government in South Korea to directly sell virtual assets seized from local tax delinquents to collect overdue payments.

To implement this plan, Paju City sent notices on the 13th to 17 individuals who have accumulated 124 million won in local tax arrears, warning them about the impending transfer and sale of their virtual assets.

The city has already seized the virtual assets of these tax delinquents through cryptocurrency exchanges. If the delinquents fail to pay their overdue taxes by the end of this month, the city plans to transfer and sell approximately 50 million won worth of virtual assets to its account to cover the unpaid taxes.

According to the city, virtual assets have recently been misused by tax delinquents as a means to hide or transfer their assets.

A city official explained, "Collection through virtual assets sends a clear message to delinquents that they cannot hide their assets, and we will continue to track delinquents' property until the end to enforce tax collection measures."

- KBS News

LOL

Why would Koreans want to leave their money on exchanges? Why would Koreans want to cash out to KRW? This question becomes more apparent proportionate to their size. Nobody would want to deposit their crypto holdings to a Korean exchange if they knew it could be confiscated this easy.

If crypto is in fact a trillion dollar opportunity and if a government were to embrace it, then the funds must flow free. There is a reason most people are comfortable with USD than RMB. The latter can be taken from you.

That last part. Where “it can be taken from you” is the reason why this industry was created. Imagine embracing an industry to instate past paradigms. You’re not thinking right.

These protectionist, high-control measures will increase outflows for onchain activities that are already more desirable for higher stakes. And assets will stay there. The very own thing they wanted to protect will be destroyed by their own fear of losing.