Why Does the Kimchi Premium Suddenly Drop from 3% to 0%?

If you watch CoinGaja for a while, you will sometimes see the kimchi premium go from 3% down to 1% and even 0% in a short time.

When they see this, many people think, "Did people in Korea suddenly sell a huge amount of coins?"

That can be the reason, but there is more than one reason the kimchi premium shrinks.

First: the Korean price went down

This is the easiest case to understand.

If the overseas price stays the same and the price on Upbit or Bithumb goes down, the gap between Korean and overseas prices narrows.

For example, if the overseas price converted into won is ₩100 million and the Korean price is ₩103 million, the kimchi premium is about 3%.

If the Korean price comes down to around ₩100 million, the kimchi premium almost disappears too.

Second: the overseas price rose first

Even if the Korean price stays the same, the kimchi premium shrinks when the price on an overseas exchange such as Binance rises quickly.

In this case, coins in Korea did not crash; the overseas market simply moved up before the Korean market did.

In practice, you can see this when global news comes out and overseas prices move first.

Third: the exchange rate moved

The kimchi premium calculation uses not only the overseas coin price but also the KRW/USD exchange rate.

Even if the coin price in dollars stays the same, a change in the exchange rate changes the price converted into won.

That is why looking at the coin chart alone sometimes does not explain why the kimchi premium changed.

A smaller kimchi premium does not always mean strong selling in Korea

This is the important part.

A kimchi premium falling from 3% to 0% may not mean that everyone in Korea suddenly sold.

The gap between Korean and overseas prices may simply have narrowed because overseas prices rose or the exchange rate changed.

When the kimchi premium suddenly widens, read it the same way

The kimchi premium can widen when Korean prices rise faster than overseas prices, when overseas prices fall, or when the exchange rate moves.

So rather than looking at the premium number alone, the key is to look at three things together: the Korean price, the overseas price and the exchange rate.

An easy way to check in practice

When the kimchi premium moves suddenly, first check:

1. whether the Upbit price moved
2. whether the Binance price moved
3. whether the KRW/USD exchange rate changed

If you go through these three in order, you can find the cause almost right away.

Especially if you want to use price gaps between exchanges, it matters much more to check why the kimchi premium changed than to judge by the premium number alone.