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A frenzy of demand for bitcoin in South Korea has buyers in the east Asian nation now paying premiums of more than 20 per cent compared with international rates.
The cryptocurrency on Thursday surpassed $14,000 as the global speculative boom showed no signs of slowing down. But nowhere is demand more acute than South Korea, where a tech-savvy and trend-sensitive population has taken to bitcoin en masse.
Many are now paying exchanges premiums worth as much as 23 per cent. By comparison, bitcoin in Japan — the spiritual home of the cryptocurrency and a key market — is being traded at a premium of between 7 per cent and 9 per cent.
“Many Koreans are curious about new technology, so they easily embrace things like bitcoin. The country has advanced IT networks so people have easy access to stock and derivatives trading. The same is true with virtual currency trading here,” said Lee Tai-ki, a researcher at the Korea Institute of Finance.
“Such a high premium cannot last long because people will soon take advantage of the arbitrage and buy bitcoin in US exchanges in dollars and sell it in Korea.”
The buying spree in South Korea comes despite growing opposition from government officials — a long line of whom have warned about the danger of the digital currency that even school children are attempting to buy.
“There are cases in which young people, including students, are jumping in to make quick money and virtual currencies are used in illegal activities like drug dealing or multi-level marketing,” Lee Nak-yon, South Korea’s prime minister, warned last month.
The comments followed a high-profile decision by Seoul in September to ban initial coin offerings — a popular mechanism for companies to raise cash by issuing coins in exchange for cryptocurrency. Those coins can later be used to buy products or services offered by the company.
This week South Korea’s Financial Services Commission banned the trade of bitcoin futures just days after US regulators gave the green light to two of the world’s largest exchanges, CME Group and CBOE Global Markets.
“This is basically like a Ponzi scheme — trading with no substance. Investors are basically passing the bomb. Still, its trading volume has surpassed the Kosdaq’s,” said one government official, referring to South Korea’s minor bourse.
South Korea, the world’s third-largest bitcoin market, accounts for 12 per cent of global trade volume, trailing Japan and the US which take up 49 per cent and 27 per cent respectively, according to market tracker Coinhills.
“There are two risks: first, you risk losing the underlying technology and second, you risk seeing a lot of investment victims. We have to care more about the second risk.”
Mr Lee added: “Everyone is looking at it as a hot investment item despite it not being widely used as an alternative currency. The market has become completely unpredictable.”
Additional reporting by Kang Buseong