Highlights From “The Kimchi Premium And The Korean Crypto Market” — VegaX Digital Asset Education Series
This edition of the VegaX Holdings Digital Asset Education Series in Partnership with Chinaccelerator features Junhaeng Lee, CEO of Streami Inc and Gopax — “Leading socially responsible innovation in finance through blockchain.”
Junhaeng provides insight regarding his experiences starting one of the most popular Korean cryptocurrency exchanges, the Kimchi Premium, and more. You can revisit and replay the recording of the webinar series by clicking on the link below.
For a summary of the webinar discussion, keep reading!
As always, please reach out to us with questions, comments, and suggestions for topics/speakers for our Digital Asset Education series!
About Junhaeng Lee, CEO of Streami Inc and Gopax, one of the leading crypto exchanges in Korea
Junhaeng got into bitcoin in late 2014 when the price dropped from $1000 to $200 or $300. He got so into crypto that he had to quit his company. Back then he was working for a private equity company based in Hong Kong. He was not an investment officer, instead, he was in operations, so he looked after the portfolio companies in Korea and help the management as a bridge between management and their portfolio companies. Before that, he was a consultant at McKinsey. Before working at McKinsey he studied history at Harvard.
When asked what the catalyst was for him to start GoPax and become an entrepreneur in the crypto space, Junhaeng stated,
“Back in 2014 I made up my mind after working short term in private equity that I was going to do something different. I was looking for a startup opportunity and learned a quite meaningful lesson that in Korea if you want to start a company the market that everyone thinks is going to be great is either working for a large conglomerate or in operations. Back then very few people thought that bitcoin was going to work and about 95% said that it was a fraud. When I looked at the people that were into it, they were all very smart actually and the concept itself behind bitcoin really grabbed me and I thought maybe this could challenge the current system. I realized that it was really a new asset class and was going to be a huge opportunity.
Initially, I thought I would join an existing crypto company that had raised capital, but back then in 2015 there was a crypto winter and everyone was pretty much laying off their employees. I got started with my own business by getting into a startup incubator after the President of Korea back in 2016 pushed initiatives to support fintech startups.”
There have been a number of times when South Korea wasn’t so positive or bullish on cryptocurrency. Can you talk about what it’s like being a founder of a company that’s in an industry that goes through these ebbs and flows of reputation?
“It’s definitely been a roller coaster. If I had the chance to do it again, I probably wouldn’t. Initially, when I started, people didn’t really know anything about blockchain or crypto. People knew what bitcoin was, but they thought it was just for gamblers or gamers. Blockchain started to get some buzz around the financial sectors, and back in 2016 a company called R3 got really into blockchain, but there weren’t enough blockchain companies in existence. There was an unwillingness of banks to take risks. There was an initiative from the government then to try to deregulate in order to allow for more crypto and blockchain services and companies, but then it abruptly stopped because the President of Korea got impeached. Then in 2017, there was an ICO craze, and there were some exchanges that listed all of the scam tokens that had been created during that time and it became a huge problem. Then the government became shocked by these activities and went into crackdown mode, and that was when the crypto reputation was the worst.
The serious repercussions came in 2018 and we had to withstand all of those headwinds. In early 2018 the minister of justice banned all of the exchanges. I’m really proud of the fact that we are one of the only exchanges in Korea that has not been fined, but that time was really difficult. Then in 2019, the market cooled off, which made more people think that it was a fraud, so the government made a decree that VCs could not invest in crypto companies. So, we had a really tough time raising capital. 2020 was tough also, but things were pretty quiet. In 2020 a regulation law was passed to regulate digital asset services companies and now we are in a bull market. In terms of a brand, things have never been better than now, because there are more big companies investing in bitcoin.”
What is the Kimchi Premium, why did it happen, and why does it continue to happen sometimes?
“The Kimchi Premium refers to a phenomenon back in 2017 and early 2018 that bitcoin has been traded at 10% to sometimes 60–70% premium. For instance, if bitcoin was $1000 at Coinbase, it was traded at $1500 in Korean exchanges. That’s called the Kimchi Premium. The forces that shaped the Kimchi Premium are basically supply and demand. Korean people are very speculative and prone to risk-taking, and we don’t have casinos here, so there isn’t the right venue that exists in other countries. Korea is also a super highly connected society and people are very IT literate, so when one person starts making money online, everyone else finds out and wants to get into it. These factors drove intense demand for bitcoin.
On the supply side, we are a G20 country but we still have huge trade surpluses and foreign reserves, and we still have very strict capital control. This has to do with the bitcoin supply because the electricity price in South Korea is high, so mining is limited because it’s non-economical. So, you can’t really mint bitcoin here. So, the only way is to procure bitcoin from overseas, but if a layman was to do that they would be subject to capital controls. So basically the combination of a highly speculative society that wants to invest combined with the capital control that constrains the bitcoin supply creates the Kimchi Premium.”
What would your one piece of advice related to the to dos and not to dos when investing in crypto be for a new investor?
“I have been telling my employees to buy bitcoin since 2015 or 2016, and I haven’t really seen very many retail investors hold it for very long. So, my advice to retail investors is, if you are a seasoned investor you can think about going all in, that’s up to you. For new investors, I recommend investing less than 5% of your portfolio in crypto and just forgetting about it. For regular people this type of volatility can be unbearable, so use it as a sort of insurance.
For institutions, I think it’s a really good opportunity to get involved now. There are so many strategies in this industry to make money.”
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Streami Inc., the company behind Gopax, was founded in 2015. The company is leading socially responsible innovation in finance through blockchain technology. Streami founded Gopax in 2017, and the cryptocurrency exchange has become one of the leading cryptocurrency exchanges in Korea in just a few years. In 2018 Gopax became the first ISO/IEC 27001 certified cryptocurrency exchange in the world. Gopax offers personal trading support, competitive pricing, market updates, and deep liquidity to traders.
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