A short time back, in early 2018, major crypto markets like Japan and South Korea demonstrated high premiums with regards to Bitcoin. During the 2017 peak, when Bitcoin rates were trading at around 20k US$ in the U.S.A spot market, Bitcoin was trading in South Korea’s crypto exchange market for 26 mil Korean Won, which is roughly equivalent to 22, 000 US$. Today, this disparity is referred to as the Kimchi premium.
After that, beginning with the introduction of several regulatory frameworks by South Korea to minimize local premiums that included the prohibition of cryptocurrency trade with foreigners in the regional market, premiums in these major markets have dropped by a large extent.
Due to the prevailing lack of supply and the relatively increased demand in certain markets, Bitcoin is trading at a premium in specific regions – some regions particularly higher than others.
The OTC Bitcoin market in Hong Kong
After the prohibition of crypto trading by the People’s Bank of China, regional Chinese banks were instructed not to collaborate with local bitcoin exchanges to avert individuals and enterprises from the trade of digital assets. Over the course of time, the Government of China has also stopped payments processors like AliPay from processing Bitcoin exchange-related transactions, this is according to information put out by Chinese Blockchain Publication 8BTC.
These haven’t deterred individual investors from continuing their investment activities, even after the ban. The imposed ban on crypto trading in China made it a compulsion for investors to move to neighbor nations like Hong Kong, basically initiating trades in a P2P manner.
OKEx, an OTC (over-the-counter) trading platform, is utilized by investors to trade Bitcoin with Tether (USDT) – Tether is a stablecoin backed by the USD. Investors then sell USDT for the HKD (Hong Kong Dollar). The Bitcoin premium surfaces when investors exchange USDT that they utilize to sell/buy Bitcoin for HKD, similar to P2P OTC markets. On OKEx, USDT trading points towards a premium that ranges from 2% – 4%.
South Korea and Japan
A majority of fiat-to-crypto exchanges in SK and Japan more or less follow price trends of the USA spot market with regards to Bitcoin. On Bithumb and Upbit, two of the largest crypto exchanges in South Korea, Bitcoin is trading at 9,900,000 Korean Won, which is equivalent to 8365 US$. The price indicated on Kraken, Gemini, and Coinbase is moving around 8345 US$, this points towards a mild premium of less than 0.25%.
The exchange market in Japan is also demonstrating a mild premium and has witnessed a majority of its premium decline over the course of the previous two years. Regarding brokerage or spot buys, which consist of a direct wire transfer or transaction via a payment processor straight to the exchange, there is a premium of 3.59%. BitFlyer estimates Bitcoin price 936,621 Japanese Yen, which is roughly equivalent to 8635 US$, this is approximately 300$ more than the international average spot price.
Thailand, Philippines, and Malaysia
The crypto exchange markets in these countries are majorly dominated by brokerages such as Coins. Coins is the biggest exchange in the Philippines and was acquired by the biggest ride hailing app in Indonesia, known as Go-Jek. Coins, with an estimated userbase of 5 million in the Philippines alone, enables users to trade Bitcoin based on predetermined prices like BitFlyer’s brokerage, which usually sees premiums in excess of 3%.
Coins.ph, the Filipino arm of Coins, featured a buy price for Bitcoin of around 440,280 Pesos, which is approximately 8,530 US$. This indicates a premium rate of 2.2%. BuyBitcoin.ph, second spot among brokerages, featured a buy price of 443, 300 Pesos demonstrating a price premium of closer to 3%. On Coins.th, the Thai branch of Coins, the buy price is fluctuating around 256, 637 Baht. This is approximately 8,425 US$, and a premium of lesser than 1%.
Thailand’s dominating spot exchange referred to as BX Thailand, was closed down on September 30th, due to low volume levels. The shutting down of dominant exchanges could cause a bigger price discrepancy in the short term as volumes shift to brokerages. However, during the long term, the gap should shut down.
Brazil and Chile
Among exchanges that have been operating over the course of the long term in South America, Bitcoin pricing closely resembles the U.S.A spot market, even on brokerages that feature fixed sell/buy prices. On ChileBit, Bitcoin is trading at approximately 8374 US$, with a 0.34% premium. Foxbit in Brazil is featuring Bitcoin prices at 8440 US$, with a 1% price premium. In South America, the premium surround spot exchanges and brokerages is general, the exception is nations like Venezuela and Argentina, where the premium is nearly zero.
Lower premiums may be indicative of reduced demand from regional investors such as Chile, and Brazil. Other such large markets in the South America region are not famous for large scale mining centers that furnish liquidity to the international Bitcoin exchange market.
GBTC in the U.S.A, LocalBitcoins and Venezuela: Unique Markets
Aside from smaller crypto exchange markets with comparatively low liquidity, tightly regulated products often used by institutional and accredited investors to invest in the Bitcoin market frequently demonstrate considerably higher premiums.
For example, GBTC, (the Bitcoin Investment Trust) which supervises approximately 2 billion US$ in assets and enables investment in Bitcoin through regulated OTC exchanges possesses a share price of 9.81 US$. Every share of GBTC is representative of 0.00097368 BTC. This carries with it the implication that approximately 1200 shares can be equated to 1 bitcoin in terms of value.
On the basis of the 9.81 US$ share price of GBTC, every Bitcoin purchased through the Bitcoin Investment Trust would be valued at more than 10,000 US$. On the basis of the current price at 8300 US$, GBTC denotes a premium in excess of 20%.
Investors fork out increased premiums for products like GBTC and ETPs (exchange-traded products) as they are reliant on third parties to secure their Bitcoin holdings. Recently, GBTC has been attempting to assist users to invest in Bitcoin at face value without the considerable premiums by utilizing a private placement window. Any decrease in the premium of GBTC is not certain.