On November 2, the price of bitcoin has surpassed 82.5 million Korean won, or $7,410, in South Korea, one of the most liquid bitcoin markets within the global cryptocurrency market, due to the rapidly increasing demand from local investors, when bitcoin was being traded at around $6,950 in other markets like the US.
South Korea is the third largest bitcoin exchange market behind Japan and the US, with approximately eight percent of the global bitcoin market share. It also operates the second largest cryptocurrency exchange in the world in Bithumb, which on its peak days process around 2.5 billion in daily trading volume.
Nearly every single cryptocurrency that was listed by Bithumb and introduced to the South Korean cryptocurrency market succeeded, including Zcash and Qtum. The short-term of success of alternative cryptocurrencies (altcoins) like Zcash and Qtum have demonstrated the liquidity of the South Korean market and its importance in the global sector.
A $400 Premium, South Korean Investors are Going All-In
Japanese and South Korean investors share similar mindset and philosophies in investment. As Yuzo Kano, the CEO of Japan’s leading cryptocurrency exchange with over 800,000 active users told Nathaniel Poppers of the New York Times in an interview:
“Japanese people tend to be very conservative with their investments, but once they get triggered they go all in.”
Tony Lyu, the founder and CEO of Korbit, one of the top three cryptocurrency trading platforms in South Korea that was recently acquired by $10 billion gaming giant Nexon at a $140 million valuation, also stated:
“Word just spreads really fast in Korea. Once people are invested, they want everyone else to join the party. There’s been this huge, almost a community movement around this.”
Currently, the South Korean bitcoin market is being flooded with new orders and investors re-allocating their funds from altcoins to bitcoin, acknowledging the upward momentum of bitcoin and its recent rally. The demand for bitcoin from both the South Korean cryptocurrency market and traditional financial industry is rapidly rising, and the limited liquidity of the South Korean market is leading to high premiums.
Until When Will Premiums Last?
Historically, the South Korean bitcoin exchange market has consistently seen premiums throughout strong rallies of bitcoin. The premiums within the South Korean bitcoin market tend to dissipate upon a minor correction or when the global bitcoin market stabilizes after a major surge.
At the current stage of bitcoin’s latest rally, a large portion of the South Korean cryptocurrency market’s investors are going all-in on bitcoin, following its upward trend. Such swift switch in demand from altcoins to bitcoin is understandable, given that the price of Ether has struggled to recover beyond $300 over the past month, while the price of bitcoin has increased from $3,300 to $7,300 within a span of three weeks.
It is quite rare to observe premiums in major market such as the US and Japan, which control some of the most liquid exchanges and trading platforms in the global market. But, in the case of South Korea, which accounts for less than 10 percent of the market share, the emergence of premiums often lead to a build up of upward momentum in the mid-term.
Already, the premium rate in South Korea has started to decline. As the bitcoin price corrected from $7,400 to $7,300, the premium rate in South Korea dropped from over $400 to less than $200.