South Korea launches cryptocurrency monitoring system to fight market manipulation

South Korea’s financial watchdog, the Financial Supervisory Service, on Thursday unveiled a national 24-hour surveillance network designed to track and trace cryptocurrency transactions with local exchanges to combat crypto market manipulation and fraud.

The system’s launch will come in tandem with new crypto investor regulations that go into effect on July 19. The new law, the Digital Asset User Protection Act, passed in 2023, would regulate unfair trade practices and apply securities rules to virtual assets. Cryptocurrency exchanges will be required by that time to pass data to the monitoring network.

The watchdog said it would monitor for accounts linked to “suspected” fraudulent activity by watching for abnormal behavior. For example, trades that exceeded the normal ranges, sudden changes in volume outside the norm and other forms of price manipulation that can signify pump-and-dump or wash trade schemes.

Unlike more tightly regulated securities, the cryptocurrency market is notoriously volatile and many governments have seen this as less friendly to investors. Although major tokens such as bitcoin and Ethereum have lower volatility given their extremely large market caps, smaller tokens, or altcoins, on the other hand, exhibit extremely high volatility and are commonly used as investment vehicles thanks to their risky nature. As assets with smaller market caps and fewer market participants, altcoins are also ripe targets for market price manipulation.

The market’s risks are such that crypto industry players in South Korea have sought to stay ahead of government regulators by announcing new self-regulatory standards that will also be implemented on July 19. Made up of 20 local crypto exchanges, the Digital Asset Exchange Association, announced that it would reevaluate more than 1,300 alternative token listings by the end of 2024. The plan is to determine if a given currency is abiding by regulations and, if it’s not, it will be removed from exchange listings.

South Korea is host to one of the largest cryptocurrency markets in the world, and trading on the market is skewed toward altcoins. According to data from Kaiko, the South Korean won became the most used currency for trading crypto in the first quarter of 2024.

To build the monitoring network, the FSS said, it worked with exchanges to prepare standardized reporting for transaction data. As a result, it will be able to separate irregular transaction data from the rest more readily. According to the regulator, the country’s major local exchanges have already implemented the monitoring system, putting almost all the transactions in the country under its scrutiny.

The FSS also called on exchanges to form dedicated teams to monitor for dubious transactions and provided a hotline for exchanges to report suspected illegal activity.

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