Surviving rollercoasters as a cryptocurrency investor in Korea

Upbit’s 15-minute Bitcoin chart showing prices for December 3-4, 2024. From 10:30 PM (Korean time) on December 3, Bitcoin’s Korean price showed a sharp decline of about 35% for 15 minutes.

By Lee Joohyeong

SEOUL: There is a saying that Koreans love gambling. There is no easy way to prove this statement with numbers, but it seems to be true at least in the crypto market.

Koreans prefer to buy cryptos that show sudden surges rather than Bitcoin (BTC) and Ethereum (ETH), which rank first and second in market capitalization in the crypto market.

Upbit, Korea’s No. 1 exchange, has maintained a top-tier trading volume worldwide, but the trading ratio of Bitcoin and Ethereum relative to the size is particularly low, proving the Korean tendencies.

With several favorable factors such as BTC’s inclusion in the US ETF in January 2024 and the US presidential election, the crypto trading craze is blowing again in Korea.

According to CoinMarketCap, a global cryptocurrency statistics website, the trading volume generated at five cryptocurrency exchanges in Korea on December 2, 2024, was approximately $27.8 billion. This is five times higher than the daily trading volume of KOSPI, Korea’s stock market, during the same period.

To understand the uniqueness of the Korean crypto market, there is a need to understand the term ‘Kimchi Premium’.

In late 2017 and early 2018, when crypto trading was active in the Korean market, there was a crypto trading craze in Korea. At that time, crypto currencies listed on Korean exchanges were priced about 30-50% higher than the global market price, and the new word ‘Kimchi Premium’ was created by combining kimchi, a representative Korean food, and premium.

At that time, it was easy to transfer crypto between Korean exchanges and foreign exchanges. Immigrants who wanted to take advantage of this price difference cashed out cryptocurrencies on Korean exchanges at a price 1.5 times higher and funneled money to their home countries. The amount was ridiculously over a billion dollars.

This led to the ‘Park Sang-ki Rebellion’.

Former Minister Park Sang-ki, who served as Minister of Justice from November 2017 to September 2019, announced an ultra-hardline response, including a plan to close exchanges, on January 11, 2018, citing the fund outflows and the volatility and unregulated nature of cryptocurrencies.

On the day of the announcement, BTC, which had maintained its undisputed No. 1 position in the crypto market share, also showed a steep rise and fall of more than 30%, and the situation of other cryptocurrencies was more serious.

At that time, Upbit and Bithumb, the top two exchanges in Korea, were leading the global market, ranking first and third in the world in terms of spot trading volume.

However, the remarks by the Minister of Justice of the major crypto trading countries are still considered to have had a significant impact on the downward trend of the global crypto market.

With the special nature of the kimchi premium, investors who traded crypto exclusively on Korean exchanges had to endure the decline in global prices and in the kimchi premium.

Since then, Korea has had to give up its leading position in the global market, and the related industry has not been able to produce any notable results. Luna, which led the global downward trend in the second half of 2022, is a crypto developed by a Korean.

The kimchi premium did occur temporarily after that, but it was intermittent and did not reach the critical level as it had a few years ago.

On December 4, 2024, when the global crypto market was welcoming spring, an event that will remain etched in the minds of Korean crypto investors occurred.

Immediately after President Yoon Seok-yeol declared martial law, the selling pressure skyrocketed, and the trading volume of Upbit, Korea’s largest exchange, reached approximately $28.4 billion. It is said that the trading volume of just one Ripple, which has been rising rapidly recently, reached about $7.1 billion.

In less than 30 minutes, most of the coins mainly traded on Upbit showed a decline of nearly half, while BTC showed an ominous decline of approximately 35%.

What is even scarier is that during that brief moment, BTC’s Korean market price was approximately 10% lower than its global price. The so-called reverse kimchi premium occurred.

BTC, which is the least volatile cryptocurrency, showed that level, so the reverse premium of coins with higher volatility must have been much higher.

Who wouldn’t have trembled and considered cutting losses when half of their assets evaporated in fleeting minutes?

Although it lost its undisputed status, the global crypto market also showed a sharp decline at that moment, reflecting the fact that the Korean market still influences the global market.

Of course, most coins that are not listed on Korean exchanges were able to avoid the Korean selling bomb. And the president’s martial law was also just a short-lived scare, so the crypto market is returning to its place as if nothing had happened. However. It did leave scars on investors using Korean exchanges.

Korea once ranked first in trading volume in the global crypto spot market. However, the precarious sand castle collapsed due to the remarks of the minister of the relevant department.

After barely rebuilding the sand castle and following the flow of the global market, half of the assets were momentarily lost due to the president’s political incident.

A screenshot of the Upbit mobile app taken around 10:45 PM (Korean time) on December 3, 2024. Most of the text is written in Korean, but it’s enough to understand the situation.

It was hard to believe that such events occurred in Korea, which has established its own position in the global market thanks to its unique characteristics?

The kimchi premium is what runs through all of these processes. Unfortunately, the existence of the kimchi premium blinds investors who rely solely on Korean prices and hinders rational trading.

All investments are zero-sum games. If someone loses, someone else gains. However, we are well aware of the fact that the majority of crypto investors have been leaving alone.

Wouldn’t investors, who have survived despite the nature of crypto investment and the explosive volatility of the Korean market, achieve the desired results in any investment?