Officials in South Korea have stated that they don’t want to put a ban on cryptocurrency trading but they have been working hard to try and crack down on the market. The biggest victims are the shadowed groups that always seem to profit from the chance to arbitrage currency fees. Regulators have also come out to say that they have identified over $600 million dollars’ worth of illegal currency but they failed to offer any details as to what they were going to do about it. In Korea, a combination of licensing rules and even limits on transfers are just some of the many reasons why so many people are having problems at the moment. On top of this, you have consumer enthusiasm as well and this ultimately means that it is going to be kimchi premium. So when you look at history, you will see that Bitcoin has been trading for 60% more in places like Korea when compared to the rest of the world. This presents a very interesting opportunity because it gives people the chance to buy Bitcoin and then sell them abroad for a huge mark up. A lot of people are even resorting to social media sites, such as LinkedIn to try and find other people who want to participate in trades like this. the advert appears to be placed by a bot or any other method that could be automated. It was also scraped from another advertisement that is in the Korean Observer. When you trace the advertisement back to the source, you will then find that it is linked to both an email account and a Skype account as well.
A fellow trader chose to take it upon themselves to contact the source and they started that they were a reporter. They got a reply instantly, but they refused to be named. When asked about the details of the scheme, they said that he was not allowed to talk about it. After being pressed, he opened up and said that there are in fact two ways to try and get around the Korean reactions on the exchange. He also went on to say that hopefully Koreans don’t read their paper, as he is going to start describing his methods.
He explained that the scheme in question involves moving money out of the country of Korea by using bedfellows that are full of English teachers and crime syndicates. The trader has also said that they have managed to generate over $300,000 in profit so far, and they have only been going for a total of 8 weeks. The reporter was not able to validate the claims but if this is true then it probably ignores the restrictions that have been put in place by South Korea. This requires you to document any transactions and you are also not allowed to take more than $50,000 out of the country in any given year. So the authorities have increasingly boosted their crackdown on trading and this makes it even harder to move large amounts of money out of the country at any given time. This is especially the case when you look at arbitrage purposes. After all, it is a very risky proposition to say the least and the main reason for this is because it reduces the liquidity. It even isolates the exchange in Korea from the global market as well and this can sometimes result in price divergencies. Bitcoin for example traded at a premium rate when compared to the rest of the world and this is all because of cryptocurrency controls.
Of course, it is important to look back on what has happened recently as well. A Seoul officer was indicted because he ran a Bitcoin arbitrage scheme. This gave the people of China the chance to buy Bitcoin. The scheme ran for a total of 10 months and he also managed to move well over $11 million out of the country. He is waiting for his sentence to be passed as this article is being written. These schemes happen quite often when you look at the interviews Erica Kang has given. She is the chief operating officer over at the blockchain firm in China.
According to the information that has been provided by the trader, the scheme is very simple. The ultimate goal is to try and buy Bitcoin from the other areas in the world and then sell them to the people of Korea. This has to be done for a profit. This can only be done when the spread in Korea is different to the other parts of the world. This is otherwise known as being kimchi premium. This has to be more than 10% in most cases because the spread also accounts for the risk and even the fees involved with transporting money in and out of the country. So on the day that the trader was contacted, the news showed a government clampdown on cryptocurrency in Korea and the trader seemed unphased by this. He stated that he will carry on doing it as long as the numbers are more than 10%. The trader has also come out to say that he has two partners who he works with in the scheme right now. One of them keeps an eye on any government crackdowns on the exchange and the other one is a go-between for the brokers. He is the one who moves the money abroad. The trader believes that his partners are gangsters and that he has known them for years. The trader is the only one who can speak English and he has all of the details for the Bitcoin movement.
So the whole process is very simple. The trader starts by handing cash over to the broker. They are then responsible for getting any English teachers who are abroad. So that raises the question, how are they able to evade the currency control? The trader then stated that they are part of an organised crime group and that most of them are gangsters. The brokers apparently skim 4% of the fee and that for normal people, these types of criminals are impossible to find. One main thing that you need to note about this operation is that no type of money leaves the shores of Korea. Instead, the brokers have credit and debits. If the trader happens to deposit some won with a broker that is located in Seoul then the broker won’t wire the money to a party that is overseas. Instead they will then credit the system with the appropriate amount of money using his own stash. The operation is very much based on trust and it is actually similar to the Hawala transfer system that comes from the silk road traders. This is still used in informal economies today and since these are gangsters, it is safe to say that they are operating from fear as well as trust. They have people in the country with a lot of money so they have the ability to send the cash to you without having to use banks. The partners are in Hong Kong and even the US in this instance. Once the money happens to be outside Korea it is then given to English teachers. They are then able to deposit it at an exchange and they can then buy the coins that they are instructed to do. The buyers then paid 5% of the funds that they are given. At the end of the day, you have to remember that these are ordinary English teachers in Korea and now they don’t have a job so they have to find other avenues of making money.