Key Takeaways:

• During a brief period of political turmoil in South Korea, the “Kimchi Premium” phenomenon reappeared, with Bitcoin trading prices reaching as high as $115,000 at its peak.
• Cryptocurrency trading shows strong regional differences across exchanges and assets.
• Since the beginning of this year, on-chain activity for established altcoins has grown significantly, particularly tokens that are primarily traded in Asia and are now targets of enforcement actions by the U.S. Securities and Exchange Commission.

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Introduction

Broadly speaking, cryptocurrency is often regarded as a borderless market that never closes. While the underlying technology of cryptocurrencies is indeed agnostic to your geographical location, various markets are highly sensitive to regional patterns, regulatory characteristics, and the preferences of residents across the globe.

In this week’s Network Status, we will use the South Korean market as a case study to explore the regional and geographical characteristics of cryptocurrency trading activities. By leveraging time zone data, we can observe the localized features of multiple cryptocurrency exchanges and assets. Finally, we will provide an update on the on-chain activity of various altcoins.

Capital Controls and the Kimchi Premium

The “Kimchi Premium” is an interesting case when studying special market behaviors that occur in specific regions. The Kimchi Premium refers to the price difference between cryptocurrencies traded in the South Korean market and the global “reference” prices. This premium is primarily driven by strong demand for crypto assets in a closed market environment, as well as years of strict regulations that have reduced the efficiency of these markets due to difficulties in international arbitrage.

While there may be apparent arbitrage opportunities, local regulations make it difficult for foreign and institutional investors to profit from them. Capital controls on the Korean won restrict the movement of fiat currency into and out of South Korean exchanges. According to the law, only South Korean nationals or foreign residents with a resident permit can trade on domestic exchanges. At the same time, foreign exchanges face more stringent regulations compared to domestic exchanges. South Koreans must first purchase cryptocurrency on local exchanges before transferring it to international exchanges for trading. These conditions collectively limit the flow of Korean capital within the system.

Finally, banking channels cause a delayed response to any arbitrage opportunities. Transferring funds from a bank to an exchange can take several hours, and sometimes even up to a day, by which time the arbitrage opportunity may have already vanished.

The Kimchi Premium has been well documented in cryptocurrency history and started attracting attention at the end of 2017.

Data Source: Coin Metrics

During the peak of the 2017-2018 bull market, the Kimchi Premium persisted. At that time, the market had low trading volume, leading to significant price differences. Notably, FTX’s sister company, Alameda Research, began exploiting this regulatory arbitrage from 2017 onwards, and at its peak, it became one of the largest cryptocurrency trading firms.

Data Source: Coin Metrics

In the 2021 bull market, we again observed the continuation of the Kimchi Premium, but it was less pronounced and occurred less frequently than in 2017. The Korean exchange Upbit’s KRW-Bitcoin market experienced frequent volatility, with the discount at one point reaching 12.5% during the May 2021 flash crash.

Data Source: Coin Metrics

The market has steadily grown over time, and the Kimchi Premium phenomenon has largely disappeared, with a few exceptions. The Kimchi Premium even pushed the price of Bitcoin in certain South Korean markets above $100,000, which occurred two weeks before the global Bitcoin price broke the $100,000 mark. On December 3, South Korean President Yoon Suk-yeol declared martial law, and the Kimchi Premium returned. According to Coin Metrics’ one-minute reference price, the premium peaked at 20%, with Bitcoin’s price reaching nearly $115,000.

Although the “Kimchi Premium” phenomenon is now well known, strict capital controls make it difficult for foreign investors to participate in the South Korean market. This makes the market vulnerable to liquidity shocks, leading to price instability.

Strong Regional Characteristics in Cryptocurrency Trading

Regional Differences in Cryptocurrency Exchanges

Although blockchains themselves are permissionless, cryptocurrency exchanges remain a necessary intermediary for the vast majority of market participants. While the cryptocurrency market is global, each exchange must comply with local regulations in order to provide services to users in a particular country. Given the varying levels of regulation around the world, the trading activities of cryptocurrency exchanges are concentrated in a few geographical regions. Very few exchanges are truly borderless.

We can use knowledge about local legal restrictions, as well as known user preferences in specific regions and indicators derived from market data, to understand how trading activities are distributed across the globe. The following chart shows the share of trading activity for specific exchanges in different time zones.

Each row represents an exchange, and each column represents the exchange’s spot trading volume during peak hours in a specific time zone: from 9:00 AM to 5:00 PM. The value in each cell compares the average trading volume of the exchange in that particular time zone to its average hourly trading volume. The last column shows the exchange’s average hourly trading volume. For example, Binance’s trading volume during East Asia hours is 12.1% lower than its average of $802 million, but its trading volume during European hours increased by 19.4%.

Data Source: Coin Metrics

As expected, we observe that the trading volume indices for South Korean exchanges Bithumb and Upbit, as well as Japanese exchanges Bitbank and Bitflyer, tend to align with East Asian trading hours. Upbit serves only East Asian markets, such as South Korea and Singapore. In fact, it is illegal for anyone in the US to trade on Upbit. Assuming that the trading activity from Upbit users outside of East Asia can be disregarded, we can consider any trading activity outside of East Asian hours as a benchmark for non-peak trading activity.

Due to the overlap between the European and US time zones, it is difficult to distinguish activity from specific regions. However, trading activity still exhibits distinct characteristics. Kraken is a US-based exchange, but its trading activity during EU hours slightly surpasses its activity during US hours.

Overall, we see that most exchanges are heavily reliant on US trading hours. Coinbase, Gemini, and Crypto.com show the greatest preference for US trading hours, with 36.1%, 57.3%, and 37.1%, respectively. Interestingly, Bullish is illegal in the US but shows a strong preference for Eastern Standard Time (38.6%).

Regionality of Asset Trading

Data Source: Coin Metrics

We can apply the same methodology to the asset trading volumes across all exchanges. Similar to exchange-specific breakdowns, the majority of asset trading activity still occurs during the EU/US trading hours. Bitcoin, Ethereum, and USDC indices particularly align with the US trading hours.

Compared to other cryptocurrencies, Ripple, Tron, Stellar, and Cardano perform better during the East Asian time zone. South Koreans have shown strong interest in XRP, while Tether on Tron is the most widely used stablecoin in Asia.

Time zone analysis is obviously constrained by longitude, so we cannot rely on it alone. We must also consider known user preferences. Bitso’s Cryptocurrency Landscape in Latin America and Stablecoins: The Story of Emerging Markets indicate that residents of Latin America have a strong preference for stablecoins, especially Tether, as it provides an attractive and stable alternative to inflationary currencies. On the other hand, Tether’s solvency is under scrutiny by US regulators, although it remains compliant and continues to serve US users. While we see USDT activity concentrated in US trading hours, its trading volume is likely to come more from South America than North America.

We can go a step further and directly examine the asset’s transfer value on-chain.

Data Source: Coin Metrics

The results in the table above are consistent with what we observed in previous articles. In earlier discussions, we noted that the on-chain activity of several assets exhibits preferences for different time periods. Bitcoin, Ethereum, and USDC’s on-chain transfer values tend to peak during the EU/US trading hours, aligning with trading volumes.

Tether’s on-chain activity is slightly different from its off-chain activity. USDT’s on-chain activity peaks during the EU trading hours with a significant increase of +46.4%, while its off-chain exchange activity is +17.8%. During the US trading hours, Tether shows a +15.5% deviation in exchange activity but experiences a -5.6% deviation in on-chain activity.

This aligns with the regional differences in stablecoin preferences we observed in our article From East to West: the Global Pulse of Stablecoin Transactions.

On-Chain Activity: A Surge in Established Altcoins

The established altcoins from 2017 and 2021 have seen significant price increases in recent weeks. XRP, TRX, ADA, and XLM have performed quite well, but does this price increase correspond to more on-chain activity?

We examined the on-chain metrics of these blockchains and compared them across different networks. Since different blockchains calculate transactions differently, we standardized the on-chain metrics using percentage growth rates from early 2024.

Source: Coin Metrics

Overall, the network activity of several blockchains is increasing. When measuring transaction volumes and active addresses, Ripple (XRP) has seen the largest increase in activity. We have also observed an increase in transaction volumes for Cardano (ADA) and Tron (TRX). This suggests that there are some notable similarities between the assets that have seen the largest increases in both price and on-chain activity:

As we saw earlier, these tokens have strong regional preferences in East Asia compared to Bitcoin and Ethereum. Many of them are currently classified as securities by the U.S. Securities and Exchange Commission (SEC).

Traders may be hoping for a comprehensive, crypto-friendly policy from the Trump administration, as Paul Atkins, recently appointed as the SEC chairman, is seen as “friendly” toward cryptocurrencies. Of course, when Gensler was initially appointed, the crypto industry also viewed him as friendly.

Conclusion

In this article, we focused on the differences in how the cryptocurrency market behaves around the world. Local regulations (such as those we saw in South Korea) strictly control the flow of capital within the market, leading to price distortions. Time zone analysis can shed light on how markets express preferences for certain trading channels or assets in specific regions. Overall, the preferences displayed by global market participants form the global cryptocurrency economy. Understanding the nuances of each market around the world will help guide the continued global adoption of cryptocurrencies.

Disclaimer:

1. This article is reposted from [foresightnews]. Copyright belongs to the original author, Victor Ramirez, Coin Metrics. If you have any objections to the repost, please contact the Gate Learn Team, and the team will handle the issue according to the relevant processes.
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