Kimchi Premium, a Bitcoin market indicator, recorded a severe drop on Wednesday as it plummeted 7% overnight. The premium is a measure of the difference between Bitcoin’s value in the South Korean exchange markets and the global exchanges.
Kimchi was a key market indicator in 2017 when a drop in its value was followed by a massive decline in Bitcoin’s price, as the world’s top digital currency fell more than 50% in a few months.
The sudden drop in Kimchi Premium can be attributed to two reasons.
- First, some big investors might be trying to liquidate their holdings. This is called the arbitrage strategy, in which traders buy BTC on global platforms and dump quickly on Korean exchanges.
- Another viable explanation is that crypto markets might be course correcting after a sudden surge over the past few days. Altcoin XRP, for example, broke the $1 barrier on Tuesday but has plummeted since and is currently trading around $0.9.
Similar drops were recorded in BTC and Ether values which ultimately caused the premium to decline.
While Kimchi Premium was a key indicator during the 2017 drop, analysts believe that it isn’t as significant this time around. That’s because of the relative stability that Crypto markets have achieved in that time period.
