Bitcoin Trade That Gave Bankman-Fried His Millions Returns in South Korea

A profitable yet operationally difficult arbitrage trade is back in vogue as bitcoin prices now command an average 10% premium in South Korea.

As of Asian morning hours, bitcoin trades just above $66,000 on most global exchanges. It commands over 93 million won on Korean exchanges such as Upbit, worth over $71,000 at current exchange rates.

The phenomenon is the so-called “Kimchi premium,” named after a popular Korean dish of fermented cabbage, which refers to the difference in bitcoin prices on local Korean exchanges compared to global bourses.

The trade is simple in theory: One can buy bitcoin on a global exchange, transfer it to a Korean exchange, and sell it for a 10% riskless profit in Korean won.

But pocketing gains from the arbitrage is quite difficult. Korea has strict capital controls, and it is challenging for foreigners to withdraw large amounts of money from the country. It means big funds cannot capitalize on the trade, and smaller investors may not have the required infrastructure.

An infamous example of someone who took advantage of the Kimchi premium was Sam Bankman-Fried, founder of the now-bankrupt trading firm Alameda Research and FTX exchange. Bankman-Fried has claimed in several interviews that the premium was as high as 50% during 2019 and 2020, which allowed his firm to make as much as a million dollars a day, per CNBC.

Meanwhile, some observers say the premium is a sign of retail participation and arises due to substantial local demand for the asset.

“Korean retail investors are getting back,” Ki Young Ju, founder of on-chain analysis firm CryptoQuant, said in an X post. “Korea Premium Index(a.k.a. Kimchi Premium) is a pure retail FOMO indicator.”

CryptoQuant’s head of research Bradley Park told CoinDesk in a Telegram message that some traders were likely taking advantage of the trade.

“As the kimchi premium increases, traders will take advantage of the arb opportunity and bring their overseas holdings home, which means Upbit's Bitcoin reserves will increase,” Park said. “We have observed a significant increase (in these reserves) at the end of February.”

Bitcoin prices are unchanged in the past 24 hours. The CoinDesk 20, a broad-based liquid index, is up 5.32%.