South Korean financial authorities have taken action against unfair cryptocurrency trading practices under the country’s investor protection regime. On January 16, 2025, the Financial Services Commission (FSC) reported its first case of unfair crypto trading under the newly enacted Virtual Asset User Protection Act, which took effect in July 2024.
The act mandates local virtual asset service providers (VASPs) to report abnormal transactions and investigate suspicious trading patterns. This law is part of South Korea’s broader efforts to protect cryptocurrency investors from market manipulation.
First Case of Manipulation
In the first case under this law, suspects allegedly manipulated cryptocurrency prices by inflating them in intervals of about 10 minutes, allowing them to profit hundreds of millions of Korean won within one month. The manipulation, known as a “pump and dump,” involved placing buy orders to artificially raise prices before dumping large amounts of pre-purchased crypto, leading to sharp price fluctuations.
The FSC stated that the manipulation occurred within minutes, with prices rising quickly before falling just as fast. This kind of rapid market fluctuation can leave other traders with losses while the manipulators profit.
With rising transaction volumes and concerns about market manipulation, the FSC plans to improve its investigation systems, encourage VASPs to monitor trades more closely, and enhance market transparency to ensure fair trading. These efforts are aimed at protecting investors and maintaining an orderly market.
The report comes as South Korea nears approval for corporate crypto trading accounts. After the second Virtual Asset Committee meeting on January 15, 2025, the FSC is considering allowing businesses to directly trade cryptocurrencies, which could increase market liquidity but also raise concerns about further manipulation by institutional players.
Upbit Exchange KYC Breach
Additionally, the FSC is investigating the Upbit exchange for at least 500,000 potential Know Your Customer (KYC) breaches in 2024. KYC regulations are crucial for preventing illegal activities such as money laundering, and violations could lead to significant penalties.
The FSC is also continuing its legal case against Lee Jung-hoon, former chair of the Bithumb exchange, who was acquitted in an appeal trial related to a 2017 customer data breach. The breach, which impacted 31,000 user accounts, reportedly resulted in nearly $7 million in stolen funds, raising concerns about the security practices of major exchanges.
South Korea’s introduction of the Virtual Asset User Protection Act shows a strong commitment to protecting investors and ensuring a fair crypto market. However, as the case of market manipulation demonstrates, effective enforcement will be key. The FSC’s efforts to tighten oversight, enforce KYC regulations, and improve market transparency will be critical in shaping the future of crypto regulation in South Korea.
What The Author Thinks
South Korea’s approach to regulating cryptocurrency markets is promising but will face challenges in enforcement. While new laws are a positive step, their success depends on how effectively they are implemented. Continuous vigilance and adaptability in response to evolving market behaviors will be necessary to ensure the integrity of the crypto market.
