3 Reasons the Kimchi Premium Looks Lower When the Exchange Rate Rises

Even if the Korean coin price stays the same, the kimchi premium figure goes down when the KRW/USD exchange rate rises. The Korean price has not fallen; the benchmark it is compared against has gone up.

The exchange rate sits inside the denominator of the formula

The kimchi premium (kimp) is a number showing by how many percent the Korean price is higher than the overseas price converted into won. The formula is (Korean price ÷ (overseas price × KRW/USD exchange rate) − 1) × 100.

The KRW/USD exchange rate is the amount of won needed to buy one dollar. Overseas exchange prices are in dollars, so to compare them directly with the Korean price you have to multiply them by the exchange rate and convert them into won. That is why the exchange rate goes on the dividing side. When the exchange rate rises, the number you divide by gets bigger, and the kimchi premium gets smaller.

Here is how it works out in numbers

Let us say there is a hypothetical coin whose overseas price is $1 and whose Korean price is ₩1,380.

If the exchange rate is ₩1,340, the overseas price in won is ₩1,340. 1,380 ÷ 1,340 ≈ 1.03, so the kimchi premium is about +3.0%.

Leave both prices as they are and raise only the exchange rate to ₩1,360, and you get 1,380 ÷ 1,360 ≈ 1.0147. The kimchi premium is about +1.5%.

Neither the Korean price nor the overseas price changed, yet the exchange rate rising by just ₩20 cut the kimchi premium by about 1.5 percentage points. Conversely, when the exchange rate falls, the kimchi premium looks bigger at the same prices.

Each site uses a different exchange rate basis, so the numbers differ too

Some places that show the kimchi premium use the won price of Tether (USDT) instead of the KRW/USD exchange rate. Tether is a coin made so that one coin moves in line with the value of one dollar, so they use its won trading price in Korea as a stand-in for the exchange rate.

However, Tether's won price can drift slightly away from the actual exchange rate depending on Korean demand. Each site also updates its exchange rate at different times, so on days when the exchange rate moves fast, the kimchi premium can look different even at the same moment.

On days the exchange rate moves, read the kimchi premium in this order

If the kimchi premium suddenly shrinks, first check whether the won price on the Korean exchange actually fell. If the Korean price stayed the same or rose and only the premium shrank, the denominator (overseas price × exchange rate) has most likely grown. In that case the cause is a rise in the overseas price, a rise in the exchange rate, or both.

So next, check whether the dollar price on the overseas exchange went up. If the overseas price is unchanged, what remains is the exchange rate. Look at how much the exchange rate or Tether's won price moved that day, and compare whether that percentage change is close to the drop in the premium.

If the overseas price is unchanged and the percentage change in the exchange rate is close to the drop in the premium, the smaller premium is most likely due to the change in the exchange rate, not to a fall in the Korean price. Whether the won value of your coins has changed should be checked with the Korean price, not with the kimchi premium.