The Seoul Central District Prosecutor’s Office has reportedly opened a new investigation into illegal foreign remittances of over 2 trillion Korean Won ($1.5 billion).
This money, sid prosecutors, was generated by trading the country’s so-called Kimchi premium on Bitcoin.
The scrutiny is part of a larger, year-long investigation conducted by the Financial Supervisory Service (FSS), South Korea’s financial regulator.
Yesterday, the FSS submitted its “investigation references” to the Supreme Prosecutor’s Office for further inquiry. “We are just reviewing the data,” a prosecutor’s office official told a local media outlet.
The references submitted include an inspection report on companies involved in foreign remittances. These companies allegedly include the country’s leading banks like Woori Bank and Shinhan Bank.
According to the FSS, the companies in question made profits by exploiting South Korea’s famous “kimchi premium” on Bitcoin and later transferred the profits abroad. Notably, a significant amount of remittances were made to China.
The Kimchi premium refers to a more expensive Bitcoin in South Korea compared to other markets. The premium created a lucrative arbitrage opportunity for savvy crypto traders.
What is South Korea’s ‘Kimchi premium’?
The difference in the price of Bitcoin between South Korean exchanges and other exchanges is often referred to as the Kimchi premium.
Moving money in and out of U.S. Dollars is difficult and time-consuming for South Korean traders. This delay in the movement of funds creates a backlog of demand which can boost the price of Bitcoin.
Alongside recent investigations launched by Korean regulators on crypto exchanges, the Kimchi premium has fallen sharply. Earlier this year, for example, the premium was as high as 21.5%.
Today, that figure is much lower. Bitcoin currently trades on exchanges like Binance and Coinbase for $21,122, according to data from CoinMarketCap.
But on Upbit, a popular South Korean exchange, Bitcoin changes hands for 28.135 million won, or nearly $21,471, according to data from TradingView.
This suggests the premium has plummeted to just 1.6%.
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