Strong domestic demand and institutional investment in South Korea have caused cryptocurrency prices on local exchanges to often be higher than the global average, creating a phenomenon known as the “Korea Premium.”

A recent report by Chainalysis has pointed out the impressive growth of the South Korean cryptocurrency market, mainly due to the rise of the “Korea Premium” index. This index measures the price difference of cryptocurrencies such as Bitcoin and Ether between Korean exchanges and the global market.

According to the report, strong domestic demand, institutional trading activity, and unique market conditions in South Korea are the main factors that have led to higher cryptocurrency prices on local exchanges than the global average. The “Korea Premium” reflects the extent to which South Korean traders are willing to pay above market prices to purchase digital assets.

The chart depicts the change in the “Korea Premium” index since July 2022. Source: CryptoQuant The impact of “Korea Premium” on investor behavior

The Korea Premium Index typically peaks during periods of high market volatility, attracting individual and institutional investors seeking to profit from price differences.

Chainalysis’ report said that South Koreans often use local exchanges to manage their assets, and the volume of cryptocurrency transfers from domestic exchanges to international exchanges is closely correlated with “Korea Premium.”

In particular, the report highlights the important role of institutional investors in driving the “Korea Premium.” These institutions control the majority of trading volume, further increasing the spreads on domestic exchanges. They take advantage of arbitrage opportunities by buying cryptocurrencies at lower prices from global exchanges and selling them on Korean platforms.

The chart shows the difference in trading volume between retail, professional and institutional investors. Source: Chainalysis

The growth of the South Korean cryptocurrency market is also reflected in the sky-high salaries of employees at Dunamu, the operator of Upbit, South Korea's largest cryptocurrency exchange.

According to the Financial Supervisory Service (FSS), the average annual salary of Dunamu employees is 133.73 million won (about $99,500), higher than the average salary of 116 million won (about $86,700) of employees at major banks such as KB Kookmin Bank, Hana Bank, Woori Bank and Shinhan Bank.