During the past weekend, the world of cryptocurrency witnessed a tremendous decline, wiping out over $400 billion from its total value. The downfall was a reaction to a series of economic decisions by former U.S. President Donald Trump. He imposed a 25% tariff on imports from Canada and Mexico, including energy commodities like oil and natural gas, along with a 10% tax on several goods produced in China. This was his attempt to rectify trade imbalances and combat intellectual property theft. Consequently, the affected nations retaliated with their own set of levies on U.S. goods.

The cryptocurrency market reacted to this brewing trade conflict by plummeting 12% at the last count, leading to over $2.2 billion in liquidations. Interestingly, as the Bitcoin price fell, the Kimchi premium ascended, indicating a possible change in trade patterns.

South Korea’s stringent capital controls give rise to the Kimchi premium by creating an imbalance that minimizes arbitrage opportunities. It becomes nearly infeasible for cryptocurrency purchased outside the country to be resold within it. Traditionally, a high premium signaled a high demand from Korean investors for Bitcoin. Analysts, however, argue that the recent rise is not a result of local buying but a reaction to external factors, with the strengthening U.S. Dollar Index (DXY) being the primary suspect.

Ki Young Ju, Blockchain researcher and CEO of CryptoQuant, observed that the premium rose when Bitcoin hit its local low point, not because Korean traders were buying the dip, but because the cryptocurrency was being converted into U.S. dollars. This implies that investors were shedding their holdings in response to larger market pressures instead of accumulating Bitcoin.

The U.S. dollar has seen considerable strengthening recently, creating a downward pull on the Bitcoin price. Consequently, many traders in South Korea have been shifting their coins into USD rather than the Korean won, unintentionally expanding the gap in Bitcoin’s price between Korean and international exchanges.

“Few Koreans are converting BTC into KRW,” Ju noted on Twitter. “Other countries are likely seeing a similar trend.”

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