Bitcoin and Ethereum, the reason for the ‘premium’… Understanding arbitrage￼
When it comes to trading bitcoin and virtual currency, there are many people who are curious about why they are traded so expensively in Korea. It is the so-called ‘Korea Premium’, and even considering the exchange rate applied to the market price of the US exchange, it is being traded at a price of 20-50%. Various communities call this ‘kimchi premium’ and criticize the peculiarity of the domestic market.
◇Why a premium is created = It is natural that the price of any product is set according to supply and demand, unless it is a reconnaissance system. The reason Korea has a higher price than other countries is because demand is always higher than the quantity supplied in the market.
The premium is usually in the 10-20% range with low trading volume, and may exceed 50% as the trading volume increases and volatility increases.
On May 25, when Bitcoin broke the highest price in Korea, it was traded at 4,899,000 won in Korea.
On the other hand, it was $2806 on the US exchange Coinbase. When converted to Korean money at the exchange rate of 1140.10 at the time, it was 3,199,120 won. The premium is 53%. Even after all fees are deducted, a significant profit remains.
Some predict that it will be difficult to reduce the premium in the short term.
Although there are individual arbitrage traders, this is because foreign trade limits are not given enough to meet the huge demand.
It seems that the situation will improve if companies buy in bulk and arbitrage, but the market is not yet attractive enough to dive into.
However, if you do a lot of arbitrage transactions, you will increase the amount of money in your account, so you may be subject to an account inquiry by the prosecution for money laundering allegations. do.
◇Digital Security Award… ‘Arbitrage trader’ = Due to this situation, those who have overseas accounts buy Bitcoin or Ethereum at an overseas exchange and sell it to a domestic exchange, and there is an opportunity to earn as much as the premium minus a small transfer fee.
It’s like buying locally bought goods and selling them in Korea.
It is known that the so-called ‘digital security award’ is increasing as the cryptocurrency trading market rapidly grows.
As they continue to supply to meet demand from overseas exchanges, the premium gradually decreases.
However, when domestic demand surges in an instant, if arbitrage traders from abroad exceed the limit to move into the country, supply stops and prices soar.
In addition, in the case of Bitcoin, the recent remittance speed has been too slow, so it sometimes takes several days to send from overseas exchanges to Korea.
Premiums are now taken for granted in the market.
An arbitrage trader said, “If you make steady arbitrage trading, you can earn hundreds of thousands of won a day.”
◇Arbitrage trading between the three domestic exchanges is also active = Even though virtual currency is a digital currency, there are often differences between exchanges. In general, when the trading volume is not large, the price difference between the three major domestic exchanges, Bithumb, Coinone, and Korbit, occurs around 1,000 won.
In this case, the cost of moving between exchanges is low, so arbitrage cannot occur.
However, if the trading volume increases rapidly and volatility increases, the difference between each exchange can be as high as 10-20% in an instant. At this time, if you buy on a cheap exchange and sell on an expensive exchange, you can earn the remaining difference after subtracting the transfer fee and cash deposit and withdrawal fee.
Arbitrage trading can be made easier if you have a certain amount of virtual currency on the exchange.
Suppose there are 10 bitcoins on each exchange. If you sell all 10 on the expensive exchange and buy 10 again on the cheapest exchange with spare cash, you will have a profit equal to the market difference.
Of course, it is necessary to calculate the minimum profitable market tax difference in advance in consideration of fees, etc.
The system down of the exchange also creates a price difference.
When domestic exchanges experience a server down due to an explosion in trading volume, the market price difference increases sharply. There are even rumors that the operating system of domestic exchanges is not perfect, so if the trading volume increases, the courtesy server will go down.
Given this situation, critics of the current system in which supply and demand are managed chaotically, argue that a single transaction management system should be established through standardization between exchanges.