Bitcoin’s most recent dip to a two month low has impacted the South Korean cryptocurrency market, which has traditionally traded well above global exchange rates.

During Bitcoin’s climactic bull run into December, South Korean exchanges were trading Bitcoin at prices nearly 50 percent higher than most exchanges around the world. This eventually led to Coinmarketcap removing some Korean exchanges due “to the extreme divergence in prices from the rest of the world and limited arbitrage opportunity.”

But this week’s new slump to lows back in the $8,000 range has completely rearranged the market, and South Korean Bitcoin exchange rates are now level with the rest of the world for the first time in almost six weeks. As Bloomberg reported this week, South Korea’s premium cryptocurrency prices have been dubbed the ‘kimchi premium,’ after Korea’s cuisine staple kimchi- a traditional dish made with napa cabbage.

After effects of ban FUD

The drop in the price of Bitcoin in South Korea has been led by weeks of speculation and misinformation about the South Korean government’s stance on cryptocurrency trade in the country. Early in January 2018, a South Korean official in the justice ministry made a sweeping statement that suggested a looming ban on cryptocurrency exchanges in the country, which led to widespread jitters in the market.

No sooner than that statement had been issued, the South Korean finance ministry rubbished the claims, saying no agreement had been reached for an all-out ban. Three weeks later, South Korea Finance Minister Kim Dong-yeon made it clear that the government would not institute bans.

Cryptocurrency legislation is being drawn up, which will legitimize cryptocurrency exchanges as financial service providers, foreigners and underaged investors will be barred from trading on South Korean exchanges. Cryptocurrency traders can no longer trade anonymously in South Korea and must have verified bank accounts linked to exchanges in order to trade.

Cut down on arbitrage

A ripple effect of South Korea’s new regulations is the clamp down on arbitrage traders. Taking advantage of the massive difference in prices of global exchanges, traders would buy Bitcoin from different exchanges and sell at a profit in South Korea. Banning foreign traders will have cut down on this, but impending tax ramifications in the country have also led to sell off by arbitrageurs.

Exchanges in the country will be asked to submit details of transactions above a certain threshold to the tax authorities, and gains made on cryptocurrency trades after appreciation will also be liable to capital gains tax. According to Bloomberg, at its height, Bitcoin was trading above $22,000 at its peak in January.