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The deepening selloff in cryptocurrencies has just claimed another victim: Bitcoin’s kimchi premium. Prices for the virtual currency in South Korea have tumbled back in line with those on overseas exchanges for the first time in seven weeks, erasing a gap that had swelled to 51 percent in early January. The premium had been so persistent -- and so unique among major markets -- that traders named it after Korea’s staple side dish. While its disappearance is partly explained by selling pressure from arbitragers, it also shows how dramatically investor sentiment has deteriorated in what used to be ground zero for the global crypto-mania. Bitcoin has dropped more than 60 percent from its January high in Korea after the nation’s regulators took several steps to restrict trading and said they’re also mulling an outright ban on cryptocurrency exchanges. The country has been on the forefront of a global push by policy makers to rein in the frenzy surrounding digital assets amid concerns over excessive speculation, money laundering, tax evasion and fraud. “The bubble in cryptocurrencies has burst” in Korea, said Yeol-mae Kim, an analyst at Eugene Investment & Securities Co. in Seoul. Bitcoin traded at about 8.7 million won ($8,080) in Korea on Friday, according to a CryptoCompare.com index tracking the country’s major exchanges. That compared with the $8,311 composite price on Bloomberg, which is derived from venues including Bitstamp and Coinbase’s GDAX exchange. Both values were at their lowest levels of the year. When the kimchi premium reached its peak in January, Bitcoin traded at the equivalent of $22,525 in Korea -- about $7,500 higher than the composite price at the time. The spread began shrinking in mid-January as fears of a regulatory clampdown escalated.
Selling by arbitragers -- who have been buying Bitcoin on international venues to offload at a higher price in Korea -- also played a role, although the country’s capital controls and anti-money-laundering rules made it difficult to execute such transactions in bulk.The country’s waning frenzy has been reflected in declining activity on domestic exchanges. Data compiled by CryptoCompare.com show that volumes have dropped by about 85 percent from December highs. ATM Queue Anecdotal evidence suggests arbitragers have become less active, too. At the cryptocurrency ATM operated by Genesis Block Ltd. in Hong Kong’s Wan Chai neighborhood, 20 to 30 Koreans used to line up every morning before 9 a.m., waiting for the location to open so they could deposit wads of cash in exchange for Bitcoins. They would then transfer the coins to an exchange in Korea and sell them at a higher price -- pocketing enough to cover the cost of flights, transaction fees and then some. After the premium halved from its peak in late January, the morning ATM queue dwindled to as few as five people, according to Wincent Hung, a director at Genesis Block. Of course, the lines could grow again if the kimchi premium returns. But Eugene Investment’s Kim says that’s unlikely as long as cryptocurrency prices are falling globally. On Friday, the Bitcoin composite price sank as much as 9.2 percent. It has dropped 24 percent this week amid expectations of more government oversight around the world. “People want to buy more when prices are on the rise,” Kim said. “Now, the market is feeling a chill.”