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

The "Kimchi premium" refers to the difference in Bitcoin prices on Korean exchanges compared to global bourses. Bitcoin is currently trading at a 10% premium in South Korea.

The arbitrage popularized by Sam Bankman-Fried involves buying bitcoin on a global exchange and selling it on a Korean exchange for a riskless profit in Korean won.

Pocketing the actual gains is difficult due to South Korea's strict capital controls.

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.