Bitcoin trading price in South Korea approaches $3,000, why is the premium so high?

The price of Bitcoin on South Korean exchanges has reached 2944美元(at press time) as domestic demand for various digital currencies such as Bitcoin and Ethereum (ETH) continues to rise.

While arbitrage opportunities have always existed in South Korea, the premium has never exceeded 10% since the three major Bitcoin exchanges, Korbit, Coinone and Coinhumb, were established in the country.

Currently, the premium for Bitcoin transactions in South Korea is nearly 30% . As of press time, the price of Bitcoin in the country has reached $2,944 (it has reached a high of $2,965), while the price in the United States and China is less than $2,300.

The driving factor behind this arbitrage opportunity and premium is South Korea’s strict anti-money laundering (AML) policy. In South Korea, any type of gambling is illegal. Because a large amount of dirty money (including income from overseas casinos and other illegal businesses) regularly flows into South Korea, the government is very strict about transactions exceeding $10,000 per transaction.

Therefore, even if you have a Korean bank account, it is difficult to take advantage of the arbitrage opportunities and high premiums in the Korean Bitcoin exchange market. If a company or individual sells more than $10,000 worth of Bitcoin on any strictly regulated Bitcoin exchange, the exchange operator must contact the user and conduct further confirmation according to the law.

Typically, such strict AML and KYC (know your customer) policies force Bitcoin investors to turn to the OTC (over-the-counter) market, such as LocalBitcoins, a P2P Bitcoin trading platform where buyers and sellers can directly establish transactions to buy and sell Bitcoin.

For example, when Chinese regulators announced a suspension of Bitcoin exchange withdrawals, LocalBitcoins China saw a significant increase in weekly trading volume. During this period, Chinese regulators also implemented strict KYC rules for exchanges, requiring Bitcoin traders to undergo video authentication and submit documents related to the source of users’ funds.

In South Korea, however, the strict AML and KYC systems have created the exact opposite effect to that of China. The legalization of Bitcoin trading and the strict regulatory framework established for Bitcoin trading platforms have further provided guarantees for the Korean Bitcoin trading market and industry. Therefore, no matter how high the premium of Korean exchanges is, the demand for Bitcoin continues to rise.

The Korean Bitcoin trading market is supported by three major exchanges, and is backed by large Korean financial groups and financial institutions. Therefore, liquidity and choice are not very large. Given the limited supply of Bitcoin and the rising demand, the premium of Bitcoin in Korea will not stop.