Bank of Korea Report: Crypto Price Gap Between Local, Foreign Exchanges Could Widen Again

The Bank of Korea claims it expects another “kimchi premium” — a widening of the gap in crypto prices between local and foreign exchanges.

South Korea’s central bank, the Bank of Korea (BoK), has cautioned of another possible widening of the gap in crypto prices between local and foreign exchanges, local news agency No Cut News reported September 11.

In the report, the bank warned the public about another possible emergence of the so-called “kimchi premium,” a phenomenon consisting of the difference between the prices of crypto at South Korea’s exchanges and crypto exchanges abroad. The kimchi premium is reportedly mainly seen in terms of Bitcoin (BTC) price.

Kim Dong-sup, the official behind the bank’s payment systems research team, has claimed that the “kimchi premium” is an “indicator of the overheated domestic market.”

South Korea is reportedly the world’s largest crypto user base, ranked third after the U.S. and Japan, having faced a whole crypto frenzy of altcoins that previously traded over 30 percent above the rest of the markets. Cryptocurrency price tracker CoinMarketCap removed South Korean exchanges from its index in January, citing an “extreme divergence in prices” from the rest of the world.

For example, during the period from July 2017 to May 2018, cryptocurrencies in South Korea cost 5 percent more than they did internationally. The “kimchi premium” rate peaked in January at 48.29 percent, while crypto prices at foreign exchanges denominated in major worldwide currencies such as the U.S. dollar and the euro had no real price differences.

Since then, Bloomberg reported in February that the “kimchi premium” has all but disappeared.

Speaking about the consequences of another “kimchi premium,” the official urged the country’s authorities to continue to monitor the market, as well as to raise public awareness of crypto in order to prevent investors from turning their life savings to crypto “on a false hope of a price increase.”

According to the BoK’s report, a high “kimchi premium” level can cause other side effects on the country’s market, such as an infusion of illegal foreign exchanges transaction.

In December 2017, the Korean authorities barred the public from anonymous crypto trading, while now a revocation of their Initial Coin Offering (ICO) ban is reportedly being considered.

Recently, South Korea’s Financial Supervisory Service (FSS) has suggested a need for greater international cooperation between regulators for crypto and ICO regulation, stressing that the country’s main challenge is to “improve transparency in transactions to prevent illegal activities.”

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Bitcoin Could Emerge As A ‘Threat’ To US Dollar In Future, Suggests St. Louis Fed Chief

The president of the St. Louis Fed says the US dollar could end up “threatened” by Bitcoin, notes crypto’s ability to cut costs in trade.

A top US policy maker made mostly positive remarks about Bitcoin, also not ruling it out as a potential “threat” to the US dollar, in an interview with CNBC Monday, May 14.

Speaking to CNBC on the sidelines of the Consensus 2018 conference in New York Monday, St. Louis Fed president James Bullard also identified positive aspects of cryptocurrency, namely revolving around cutting costs in trade. He stated that crypto is “facilitating trade that would not otherwise occur. Some of that’s illegal, but some of that is avoiding costs that would otherwise be there.”

Asked whether Bitcoin was a threat to the US dollar, Bullard voiced uncertainty about the  potential competition the leading cryptocurrency could pose, saying, “I don’t think so at this point […]. We don’t know how the future’s going to unfold.”

“My idea is that there’s a lot of currency competition going on right now,” Bullard meanwhile continued on the topic of dollar supremacy, adding:

“The dollar has been the winner historically because it’s backed by the largest economy and a relatively stable policy in terms of low inflation and that’s going to be tough to beat. But a lot of people here want to beat it.”

On the topic of blockchain, Bullard was much more openly bullish, saying:

“we think blockchain technology is very interesting [..] we want to be very engaged and thoughtful as this proceeds.”

He also responded to a question of whether or not the Fed was considering issuing its own cryptocurrency, saying noncommittally, “we can certainly look at that as a possibility. And there are different parts of the Fed that look at all kinds of applications of blockchain technology. But I wouldn’t say there’s any plan at this point.

The comments continue the trend of general crypto support from the St. Louis Fed. In January this year, the reserve bank published a dedicated paper titled “A Short Introduction to the World of Cryptocurrencies” in which researches forecast it was “likely” that Bitcoin and altcoins would “emerge as their own asset class.”

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