South Korea's Political Crisis Pushes 'Kimchi Premium' to Four-Month Peak

The surge in Bitcoin interest among South Korean investors coincides with escalating political turmoil in East Asia.

The political turmoil in South Korea has had a significant impact on the local cryptocurrency market, driving up the so-called "Kimchi Premium" to its highest level in four months.

This premium, which reflects the price difference between Bitcoin on South Korean exchange Upbit and global crypto exchange Coinbase, rose by 3-5% last week, according to data from CryptoQuant.

A higher Kimchi Premium typically indicates strong demand for Bitcoin among South Korean investors.

This demand was also evident in the market for Tether, with a similar indicator showing a comparable spike in premium.

Ki Young Ju, founder and CEO of CryptoQuant, highlighted the role of capital outflows and inflation fears in driving this demand.

"South Korea faces an unprecedented wealth outflow amid political turmoil, declining birth rates, and slowing growth," he explained.

"Inflation fears drive conversions of won assets into US stocks, Bitcoin, gold, and dollars. Many crypto investors prefer exchanges over banks, with Tether and Bitcoin trading at 2-5% premiums."

Ju further illustrated this point by sharing a chart on his Twitter page, which can be viewed here.

The political landscape in South Korea has been volatile, with President Yoon Suk Yeol's brief declaration of martial law earlier this month being swiftly reversed after only six hours.

Yoon was subsequently impeached by the National Assembly on December 14, and Prime Minister Han Duck-soo was appointed as the acting president.

In the latest development, parliament also voted to impeach Han on Friday, marking the first time an acting president has been impeached in the country.

Amidst these political upheavals, South Korea also faces economic challenges, including rising inflation, and external threats, such as nuclear tests by North Korea.

The Korean won and bonds have declined in value, while insurance against a default on Korea's sovereign bonds has surged as the political crisis heightens investors' concerns.

It's worth noting that the volume of crypto exchanges in Korea regularly outstrips that of stock exchanges, making South Korea a prime example of a cryptocurrency retail market.

Korean cryptocurrency exchanges do not permit the establishment of corporate accounts, indicating that the vast majority of South Korean crypto activity comes from individual investors.