While arbitrage opportunities in South Korea always existed because the launch of Korbit, Coinone and Coinhumb, the three leading Bitcoin exchanges in the united states, the premium rate rarely went past 10 percent.
On May 23, the premium rate on South Korean Bitcoin exchanges nearly reached 30 percent, demonstrating a trading value of 800 ₦1.08 Mln ($2,850) for Bitcoin, while Bitcoin had been traded in the US and China for approximately ₦800k ($2,100)
The driving factor with this massive arbitrage opportunity and premium rate in South Korea could be the country's strict anti-money laundering policies. In South Korea, almost any gambling is illegal and must be wide range of parallel money contains revenues from overseas casinos and other businesses are sent back once again to South Korea on a typical basis. Authorities are strict on any transactions which goes past ₦3.81 Mln ($10,000) altogether value.
Hence, despite having a South Korean banking account, it's incredibly difficult to make most of the South Korean Bitcoin exchange market's arbitrage opportunity and huge premium rate. If any business or individual sells more than ₦3.81 Mln ($10,000 )worth of Bitcoin at any one of South Korea's strictly regulated Bitcoin exchanges, by law, operators of Bitcoin exchanges are required to get hold of that person for extra verification.
Usually, such strict AML and Know Your Customer (KYC) policies drive away Bitcoin investors to over-the-counter (OTC) markets such as for example LocalBitcoins, a peer to peer Bitcoin trading platform wherein buyers and seller directly initiate deals to buy or sell Bitcoin.
For example, once the Chinese authorities suspended the withdrawal of local Bitcoin exchanges, LocalBitcoins China saw a huge spike in its weekly trading volume. As of this time period, the Chinese regulators also implemented strict KYC protocols for exchanges and required Bitcoin traders to participate in face-to-face interviews and submit financial documents to trace the origin of user funds.
In South Korea, the implementation of strict AML and KYC systems had the opposite effect. The legalization of Bitcoin trading and the strict regulatory framework for Bitcoin trading platforms further validated the Bitcoin exchange market and industry in South Korea. Consequently, the demand for Bitcoin has continued to go up inspite of the premium rate that's currently being demonstrated by South Korea's top exchanges.
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