Korean Arbitrage — How We Beat the System

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Common cryptocurrency laid on top of a stack of 10000 Korean Won notesLate at night the 5th of January 2018 I sent Kim a test batch of 10 Ethereum, bought at Coinbase for 10.500$. He sold it on Korbit less than 5 minutes later, at 15.000$.

Up to 50% profit per trade. No risk. No limit. We were set to make billions.


The Background

Coming into cryptocurrency in November 2017 I had a glorious first month. On Ethereum and the Substratum project I quadrupled my initial investment of 3000$ and naturally got really hooked.

Then, as prices peaked during Christmas I suddenly noticed a gigantic price differences between crypto exchanges.

Koreans seemed to pay 50% more for their cryptocurrency! An assets you could move anywhere in the world within seconds, almost for free? Surely this could be exploited.


The Setup & The Rub

The theory is easy, buy low and sell high. Our 7 steps to riches:

  1. Deposit dollars on a western exchange (Coinbase)
  2. Buy “cheap” crypto (we used Ethereum)
  3. Send it to a Korean exchange (Korbit)
  4. Sell there and earn 30–50% (Ka-ching!)
  5. Withdraw to fiat (Korean won)
  6. Deposit again on a western exchange
  7. Rinse, repeat. Swim in money.

In practice it is anything but easy.

Koreans are banned from using western exchanges. In fact, withdrawing money from South Korea at all is virtually impossible (CCN article). This applies for any regular citizen.


The Inside Man

Earlier in 2017 I co-lead a Norwegian clan in the mobile hit game Clash Royale. The other guy, Kim, quit recently, but I knew and trusted him from months of joint leadership. He was also Korean, and Norwegian…

A phone call later — well, “a call” first, then several long and gradually more excited ones, then hours and hours of chatting, googling and testing — until we had it all figured out.

Kim wasn’t only a dual citizen, he also owned several export firms in Korea. This unique mix made him one of very few people actually allowed to move substantial amounts of cash out of Korea.

With my idea and his position the stage was set. We agreed to split all profits fair and square, 50/50, and fabled of a luxurious holiday together in Asia the following summer.


The Hurdles

Even with Kims position getting the money out of Korea still posed a problem. Every time we found a solution his bank refused it and stopped Kim from sending anything back to me.

Testing Paypal, Western Union, bank transfers and countless other “old world” money transfer tools we grew restless. They all either had no service in Korea or Kims bank came up with reasons why they couldn’t be used. Their own suggestions charged ridiculous fees of 5–10% of the total sum.


The Win

In the end we settled for Skrill. They grabbed 3–4% along the way, but it was super fast, and most importantly — the Korean bank accepted its use.

19th of January the money finally came through, we had done it! Getting that first payout was wonderful.

Bank statement from the first Skrill payout.
104 537,88 NOK, roughly 13.000$

A week of planning, two weeks of hard work. Finally we could reap the rewards, and they were practically limitless…


The $100.000 Week

In the meantime though things had changed.

The arbitrage that had existed for years was dwindling fast. By mid January it was down to 10–15%, a level where all profit went to cover Kims cut and fees to and fro Korea.

Secondly, by tweaking the system we figured out a way for Kim to trade all on his own.

He utilised his larger bankroll and made 30.000$ in a day even on low arbitrage.

I cheered him on while sensing trouble. He talked about the split not being fair. Why do 50/50 if I wasn’t involved?


The Bitter End

I partly agreed, but hoped we would figure it out. Arguing the idea and work put in should count for something. He disagreed. This was business, not charity. When trading for me we split 50/50, his trades were none of my business.

To be fair he tried to trade a last batch for me as well. After the fees and his cut it broke even.

Around this time his bank also noted the fast rising foreign deposits, suspecting crypto purchases they now threatened to close all accounts, both personal and corporate. Korea was clamping down hard on crypto.

During our last chat he resigned: “I can’t live on crypto alone. I have to choose banks and fiat, cash”. O’ the irony.

We closed the partnership in disappointment, as a band aid he sent 800$ left over to cover possible taxes on my trades. Fair and square.


The Lessons and Leftovers

After all was paid and done I was left with a few less illusions and about $3000 profit, mostly from the first test batch. Not too bad really, although the hourly rate was probably a far cry from minimum wage.

I also learned that no matter how well you know someone you really need to write contracts before money starts pouring in.

The lesson might have been costly, but it will definitely last a lifetime.


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Disclaimer: All information and data on this blog post is for informational purposes only. My opinions are my own. I do not provide personal investment advice and I am not a qualified licensed investment adviser. All information is provided as is with no warranties and confers no rights.

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