Sam Bankman-Fried's Bitcoin Capers Explained
Sam Bankman-Fried isn’t the name that comes up often in everyday crypto talk. Neither does the term Kimchi Premium. Ever heard of either one? Odds are, you haven’t (no, we’re not calling you dumb.) Stick around for a few minutes, this story is worth it.
Let’s kick this off by giving you Kimchi Premium 101. The term refers to the gap in cryptocurrency prices on South Korean exchanges compared to other exchanges located globally. At least, that’s what that know-it-all Mr. Google says. In simple words, Bitcoin is priced quite differently in South Korea, compared to the rest of the Terra (Spanish for Earth). Immediately the good old “buy where it’s cheap, sell where it’s dear” comes to mind, eh?
And that’s where Sam Bankman-Fried comes in.
This guy saw this Kimchi Premium thing as an opportunity to bag some lettuce. Back in the day, demand for Bitcoin in South Korea was through the roof and into the holy heavens above, and so it traded for $15,000 in Korea, compared to $10,000 elsewhere (50% premium). However, buying in the US and selling in Korea for Korean Won had its share of setbacks. You see, Korean won is a regulated currency and it can be hard to offload huge quantities of it. So, Bankman could only do this kind of trade small-time.
Bankman-Fried then sought a similar opportunity in other markets; lucky for him, there was one such place - Japan. True, it wasn’t nearly as sweet as it was in South Korea, considering that Bitcoin was trading in Japan at close to 15% premium at the peak, instead of the full 50%, but it was still a fair shot. After buying Bitcoin for $10,000 in the US, Sam would send it to a Japanese exchange where it was dropped off for $11,500 worth of Japanese yen, at that point they would convert the amount back to franklins. Then it’s “rinse and repeat.”
Because of the nature of global trading and wire transfers being involved, it could take up to a day to perform it full-circle. Add to that the pesky formalities of getting the right platform to buy Bitcoin at scale, then getting approval to use Japanese exchanges and accounts. There was also the difficulty of getting millions of US lettuce out of Japan and into America every day - it was a pain in the rump, but it was doable.
Not to mention profitable.
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