A Local Premium and Fluctuations: An Empirical Study on KorBit and the International Market

Abstract

Bitcoin, the first cryptocurrency created by Satoshi Nakamoto in 2009, has attracted considerable attention. The price of Bitcoin rose from $500 in the year 2014 to $70,000 in 2021, an astonishing 14,000% increase in the value, showing that it is a highly speculative asset. The Korean virtual currency exchange, KorBit, has emerged as a significant player in the global Bitcoin market, gaining considerable attention with a nontrivial premium known as the kimchi premium. We investigate how the Bitcoins value fluctuates and co-fluctuates across two markets of KorBit and international Bitcoin market (IntBit) based on a multivariate GARCH. We also explore what factors drive a relatively high yield and fluctuations in KorBit over IntBit. We have found that when the volatilities of Bitcoins yields in the two markets are contemporaneously high with a premium in KorBit, the correlation of the yields between the two markets decreases and highly fluctuates. We have also found that a relatively high yield of Bitcoin and its fluctuations in KorBit are mainly caused by depreciation of the Korean won and gains of KOSPI over S&P500.