Cryptocurrencies such as Bitcoin(BTC), Ethereum, and EOS is traded anywhere in the world by anyone. Therefore, the value differentials between exchange markets are not be too big. Even if some difference occurs, it bounces back to be even by the arbitrage transactions. In 2017, during the golden era of global cryptocurrency when its price was rising rapidly, the so-called ‘Kimchi Premium’ occurred. It was a situation where the cryptocurrencies were trading at 10-100% higher prices in the domestic Korean market due to the supply deficit compared to the demands. However, as the Ministry of Justice announced the shutdown of the exchange, the platforms, Kimchi Premium has long-gone due to the demand decrease and the arbitrage transactions. There even was an idea of ‘Reverse Kimchi Premium’ which the domestic cryptocurrency prices were cheaper than the overseas.’
There recently was a situation in which the cryptocurrency prices of domestic exchange market Korbit have become cheaper compared to other exchange markets. Was it the Reverse Kimchi Premium? No. The KRW deposit suspension from a bank the exchange platform was in contract with is the main reason.
The BTC prices of Bithumb and UPbit at 3 pm on Jul. 18 are 11,772,000 KRW and 11,763,000 KRW each. Meanwhile, in the overseas exchange markets Binance, Huobi, OKEx, the prices are 9,848.29 USD(about 11,603,200 KRW), 9,843.88 USD(11,596,000 KRW), and 9,846.18 USD(11,598,800 KRW) each, which does not seem to be too different considering foreign exchange variable.
However, the prices trading in Korbit at the same moment are BTC 10,466,500 KRW, Ethereum 227,400 KRW, Ripple 331.3 KRW, and BCH 318,650 KRW. Compare these to the prices of UPbit, the differentials in favor of UPbit are as follows: BTC 1,248,500 KRW(10.6%); Ethereum 31,900 KRW(12.2%); Ripple 44.7 KRW(11.8%); and BCH 37,450 KRW(10.4%). The Kimchi/Reverse Kimchi Premium is happening between the Korean exchange platforms.
Korbit mentioned that suspension measure of KRW deposit from the bank they are using is to blame. A person in concern of Korbit said, “We received a notice from our main bank Shinhan about the deposit suspension from the second week of June. Shinhan explained that it is due to a voice phishing report.”
However, when there is a voice phishing report relating the four major exchange platforms and of course including Korbit, only the relevant account was suspended in the past. It is because the four major platforms verify the real-names of their customers to open the accounts. However, entire accounts in KRW for Korbit is suspended this time.
(For reference, exchange platforms other than four major platforms are using so-called Hive Account. The hive account is a corporate account which is divided for members to use as their accounts. Thus, if there is any voice phishing report relating to the hive account using the exchange platform, the entire transaction can be suspended.)
The person in concern of Korbit said, “Shinhan notified us that the suspension clear is delayed due to their overall system upgrade related to voice phishing.” and insisted the suspension will soon be cleared.
However, it is likely that the suspension from Shinhan Bank may not be cleared soon. Shinhan Bank has shown its will to pre-measure voice phishing while announcing ‘Countermeasures to Exterminate Telecommunication Financial Fraud Damages’ in Jun. 30. The bank is establishing a FDS(Fraud Detection System) lab for the campaign. A.I. monitoring fraud transactions will be launched by the end of July. Also, they will operate ‘Telecommunication Financial Fraud Extermination Association’ and strengthen ‘Standards for Account Open & Credit Limit.’ Especially the management of the exchange platforms will be strengthened. It plans on allocating specialized personnel for the transaction analysis of cryptocurrency exchange market accounts.
There are no arbitrage transactions in Korbit due to the deposit suspension. Hypothetically, buying 10 BTC from Korbit at 10.46 million KRW to sell them in UPbit at 11.76 million KRW would make the differential profit of 13 million KRW. Even with considering all the cost, the net profit per transaction still is over 10 million KRW. As the arbitrage transaction repeats, the price of Korbit rises to make the differentials even. However, the KRW deposit to purchase for the arbitrage is impossible at the moment. New members will not be joined. Korbit is in a vicious circle.
The Korbit’s suspension may be expanded to other exchange platforms too. The AML(Anti-Money Laundering) measures became a hot issue now in Korea, due to the FATF(Financial Action Task Force on Money Laundering)’s new recommendation proposal about cryptocurrency announcement last month. The banks’ requirements must be tightened if the amendments of the ‘Act on Specific Financial Transaction Report’(SFTR) is passed.
Personnel from NH Bank said, “As the real-name accounts of both Bithumb and Coinone will be expired in the upcoming August, we are reviewing the renewal of contracts. Now, there aren’t any AML duties imposed on the exchange platforms. However, the platforms should follow the level of duties that the banks are complying with.”
A person in concern of Korbit said, “The trading is dramatically decreased after the KRW suspension. It is hard to have new members. We are counting on the recovery after the suspension clear.” There may be the hope of most of the domestic exchange platforms, though it seems to be very little promising.
Park, Geunmo (2019. 07. 19.) ‘원화 입금 중단’ 거래소 울상 “거래량 줄고 신규 안 늘어”
Coindesk Korea, retrieved by https://www.coindeskkorea.com/nokrwdeposit/?utm_source=telegram&utm_medium=push&utm_campaign=Messenger&utm_content=article
