Original title: Korean Meme Mania
Original author: MORBID-19
Original translation: TechFlow
Hopefully everyone is making life-changing money on-chain. No one? Maybe it was sold off by the Korean market. I've seen dozens of P&L screenshots with hundreds of thousands or even millions of dollars in profits. Even in real life, I've heard of people I don't know too far away making a lot of money. Yeah, if you don't trade Meme Coin, you can't make money.
Until now, the public perception has been that Koreans only trade on centralized exchanges, mostly on Upbit. This is only partially true. What is the point of centralized exchanges when there are 1,000x more opportunities on-chain?
However, when you look at $DOGE and $SHIB, Upbit is still the second largest spot market.
"Don't ignore the crazy Korean buying" is an old saying.
The Korean market tastes different this time
But where is the premium? For the past few weeks, I have been talking about the Korean market premium as a sentiment indicator. If the Korean market premium reaches +10%, it is time to slowly stabilize. But this time seems different. I see people checking their Binance portfolios in the subway, and friends are asking about DOGE.
But why is there no 10% premium for the Korean market?
Bitcoin hitting $90,000 is incredible. But this chart doesn’t make sense. What’s going on?
Aren’t Koreans buying in? Not really. Recently, projects listed on Upbit have experienced significant increases.
Aren’t there any new users? No. South Korean crypto apps have been ranking high in the app stores recently.
Have we gotten better at arbitrage? No.
If so, why didn't we do better earlier this year?
We actually did find a better way to arbitrage the Korean premium. The team at Presto Research did a great job on this: while it could just be “we’re still early days”, Upbit’s recent volume was over $18 billion, up from $14 billion in March 2024 when the Korean premium hit 10% and stayed at 5%. So why isn’t there a premium now?
So, what has changed from March 2024 to now? I think the main reasons are: 1) the listing of USDT, 2) macro market conditions, and 3) the implementation of the "Virtual Asset User Protection Law". Although Bithumb listed $USDT in December 2023, Upbit followed relatively late in June 2024. Before that, most Korean investors used $TRX or $XRP to transfer cryptocurrencies from Korean exchanges to global platforms such as Binance, Bybit, and OKX. With the listing of USDT, it is now easier for people to arbitrage the premium and invest directly in USD.
Especially with the weakening of the Korean won and the Korean stock market significantly underperforming cryptocurrencies and the US stock market, there has been a surge in interest in investing in the US dollar. This has led to an increase in USDT trading volume, which now has a market share of about 9%, compared to just 2.6% in December. It is important to note that most trading pairs on Korean exchanges are in Korean won (e.g., BTC/KRW, ETH/KRW), not stablecoins. This means that most of USDT's trading volume comes from the USDT/KRW trading pair.
Therefore, one of the easiest ways for Koreans to make money historically has been to trade through the Korean market premium. This involves buying USDT, transferring it to a foreign exchange, earning the yield, and returning to the Korean market when the Korean market premium occurs (while earning yield in KRW after the law is implemented + Bithumb's free trading fee campaign) - or simply buying USDT when the Korean market premium is low and selling it when it is high. This trading has become more active, and I think it is suppressing the Korean market premium.
——Min Jung (Read the full article here)
OMG, I had not thought of this before. So my previous assumption that the Korea premium as a bullish indicator would disappear with the activation of institutional accounts now seems completely outdated. The Korea premium may not make sense at all!
But is this a good thing or a bad thing?
I'm not sure. For Koreans, a lower premium to the Korean market means prices are fairer. For the broader market, they lose a metric to judge market highs.
However, I guess Koreans are also slowly losing something to some extent. Just today, the Financial Supervisory Service (FSS) of South Korea proposed that exchanges be allowed to freeze crypto trading accounts without notifying users.
Under the (Virtual Asset User Protection Act), exchanges must disclose the reasons for freezing accounts before taking action. However, the FSS wants to allow exchanges to pre-freeze accounts in certain "special circumstances" to respond to emergency situations such as hacking, fraud, and, more familiarly, money laundering attempts.
In principle, advance notice is required, but they emphasize that the predictability of the reasons for account freezing and the purpose and intention of advance notice should be fully considered.
The same applies when the National Tax Service or an investigative authority requests freezing of accounts and requests a delay in notification to achieve its investigative purposes.
FSS emphasises that advance notice must be provided if, after careful consideration, there are no unavoidable circumstances preventing it.
Wait, what does that mean? Not only do they allow pre-emptive freezing of accounts to protect consumers, but they also protect national interests? Who would have thought. Yet another reason not to keep your money on Korean exchanges. Imagine quintupling a random altcoin on Upbit, only to have your funds frozen by the tax office.
Needless to say:
Paju City in Gyeonggi Province announced plans to become the first local government in South Korea to directly sell virtual assets confiscated from local tax defaulters to collect outstanding debts.
To implement this plan, Paju City sent notices on the 13th to 17 individuals who had accumulated 124 million won in arrears in local taxes, warning them of the impending transfer and sale of their virtual assets.
The city has confiscated virtual assets from these tax defaulters through cryptocurrency exchanges. If these people fail to pay their overdue taxes by the end of this month, the city government plans to transfer virtual assets worth approximately 50 million won to their accounts to offset the unpaid taxes.
According to the city government, virtual assets have recently been used by tax defaulters as a means to hide or transfer assets. A city government official explained, "Collection through virtual assets sends a clear message to defaulters that they cannot hide their assets, and we will continue to track down defaulters' assets until tax measures are finally enforced." - KBS News
Why would Koreans choose to keep their funds on exchanges? Why would they want to convert cryptocurrencies into won? This question becomes more obvious as the market size grows. If people know that their crypto assets can be confiscated so easily, who would be willing to deposit them on Korean exchanges?
If cryptocurrencies are truly a trillion dollar opportunity and governments are willing to support it, money must be able to flow freely. There is a reason why people prefer to use dollars rather than yuan, because the latter can be confiscated.
The crypto industry was born because of the possibility of confiscation. It is unreasonable to imagine an industry being accepted but returning to the old mindset.
These protectionist and highly controlled measures will only increase capital outflows, especially in high-risk on-chain activities. Assets will remain on-chain, and the very things they are trying to protect will be destroyed due to the fear of losing them.
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