There are a variety of different places across the world where you can buy, sell or exchange Crypto. The most popular way to do it though is on a dedicated Cryptocurrency exchange. There are many exchanges now operating across the globe, with a very small number of those accounting for most of the trading in Cryptocurrency.
Some of the biggest exchanges are based in South Korea. South Korea has become a major hub for trading all types of Cryptocurrency for a variety of reasons. The local population has embraced the technology in far greater numbers than anywhere else in the world meaning that exchanges based on South Korea can have a very large effect on prices. This is especially true in the case of Bitcoin.
The Korea Premium
However even though Cryptos are traded internationally and there are multiple exchanges based around the globe, Bitcoin for example, which can be easily sent across borders, is up to 30% more expensive on exchanges based in South Korea.
In a normal market this price differential would quickly disappear as traders in one market moved their holdings to South Korea and sold them there and vice versa. This would push down the price of Bitcoin on these exchanges to the international average.
This is not happening however. The question that must be asked is why?
The Local Legal System
The reason that this price difference exists is down to local laws in South Korea. In order for traders based in Korea to sell their Bitcoin on international exchanges they must first change the local currency, the Korean Won, into US dollars.
However, this is not easy to do as local residents and others who wish to move more than $50,000 out of the country in a single year must submit a large amount of documentation to local authorities in order to do so.
This is not the only problem. Transactions with a value that is greater than $10,000 must be highlighted to the local tax authorities too.
Not all market participants may be comfortable with this for various reasons. Thus, there is a huge amount of traders with money to invest who can only invest on exchanges based in South Korea. This causes the price to be much higher than elsewhere.
It’s a slow process
In addition to the above legal obstacles, it is a slow process to move Bitcoin on the network. In the hour or so that it takes for a transaction to be confirmed, the price of the coin may have swung dramatically leaving an investor holding a potential loss.
What does this mean for me?
For an international trader the higher price in Korea should not have much impact. It may even be a good sign as it could potentially mean that the price you are buying and selling Bitcoin at is more likely to be a more accurate global price.
In the future this price difference will probably disappear but for now, it should not be something that causes too much concern.
However a limited and closed market could experience much greater levels of price volatility. This could in theory spread to other Crypto trading parts of the world.
Again, its the result of unique local circumstances so should be viewed cautiously by those who trade, hold and develop Cryptocurrency.