There is a South Korean crypto study recently on Chinese Bitcoin arbitrage traders and Korea’s “kimchi premium” on Bitcoin prices. His characterization of cross-border Bitcoin trading and his recommendations miss some key economic fundamentals.

a recent post crypto studio by Incheon National University and the Bank of Korea is making the rounds. The authors found a strong correlation between the “kimchi premium” and international remittances to China.

‘Kimchi Premium’ Is the Persistently Highest Bitcoin Price in South Korea

He kimchi cousin are the highest Bitcoin and cryptocurrency prices in South Korea. That is due to the higher relative demand for Bitcoin within the Korean economy versus fiat payments. It is also the result of a lower supply of BTC.

The authors of the article infer that Chinese arbitrage traders are selling Bitcoin to the South Koreans. They suggest it is because Chinese Bitcoin sellers seek the kimchi premium. They are selling it to South Korean cryptocurrency traders specifically to get a higher price.

The authors of the article frame this as Chinese cryptocurrency traders taking advantage of Korean cryptocurrency traders. They call South Korea a “target” and say Chinese crypto traders are “exploiting excess demand.” In addition, they also mandate international cryptocurrency regulation standards to protect investors.

But Chinese crypto traders are not fleecing South Korean crypto traders. South Korean Bitcoin buyers don’t mind being fleeced if that’s what it is. They are willing to pay higher prices to get more Bitcoin.

The Chinese are serving the highest demand

The study originated from Incheon National’s economics department. But the paper itself is not very cheap. The author does not appear to consider cross-border bitcoin trading economically.

Higher prices exist specifically to attract more sellers. This is how markets work to coordinate supply and demand. There is not as much Bitcoin in South Korea as there are people in the market there. would like.

So they are willing to pay a higher price to get more Bitcoin. That is a free market. It is not exploitation. This is how prices allocate resources where people want them most in the fair trade-offs we all make.

Chinese traders who get the kimchi premium are responding to an incentive. Bitcoin buyers in Korea augment that incentive with their own money. They use the highest price they are willing to pay as BTC bait.

Ironically, the document calls for political intervention. That’s ironic because it’s political (strict Korean capital controls) that creates the Bitcoin shortage in South Korea. That BTC shortage is the cause of the kimchi premium.

A decrease in government controls over financial markets could be more apt to reduce the premium. The mutually beneficial business relationship between Chinese and Korean cryptocurrency traders is not exploitation. it’s economy