Kimchi Premium Arbitrage

Sam Bankman-Fried (SBF) built a successful crypto arbitrage business by exploiting price differences between geographic markets, particularly focusing on the "Kimchi premium" - where Bitcoin traded at different prices across countries due to market access restrictions.

Key Points:

• Market Opportunity:

  • Bitcoin prices varied significantly between countries
  • Example: $10K in US vs $15K in Korea
  • Caused by restricted access to exchanges in certain countries

• Execution Strategy:

  • Set up local banking relationships in target countries
  • Established same-day wire transfer capabilities
  • Started with $2M initial trades
  • Recycled profits to increase trade size daily ($2M → $2.2M → $2.4M)

• Operational Requirements:

  • Local bank accounts that could handle large daily transfers
  • Ability to move money in and out same day
  • Network of banks willing to support high-volume crypto trading

• Results:

  • Generated $20-30M in one summer
  • Used profits to eventually build FTX
  • Success came from solving the operational/banking challenges that prevented others from exploiting the arbitrage

• Key Challenge Solved:

  • While many saw the price differences, SBF's team figured out how to actually execute the trades through local banking relationships
  • The premium existed because most traders couldn't solve the operational challenges