South Korea’s Financial Supervisory Service (FSS) is ramping up its investigations into cryptocurrency price manipulation in 2026. The agency's plans focus on high-risk trading tactics, particularly targeting 'whale' activity and schemes exploiting local exchange disruptions, according to Yonhap News Agency.

FSS Governor Lee Chang-jin emphasized that the investigations will tackle practices undermining market order, such as coordinated manipulation and tactics that take advantage of exchange deposit or withdrawal suspensions. The FSS aims to enhance automated detection of abnormal price movements and develop tools to identify potential manipulation by analyzing trading patterns and flagged accounts. This move comes in the wake of increasing scrutiny on crypto market activities, driven by a series of incidents that have raised concerns among regulators and investors alike.

The planned investigations specifically address tactics that distort price discovery, including the controversial practice known as 'gating,' which can trap supply and create misleading price movements. 'Gating' refers to scenarios where a temporary halt on deposits or withdrawals leads to artificial price fluctuations, disconnecting the asset's market value from actual trading conditions. This practice can be particularly detrimental, as it creates a deceptive environment for investors who might make decisions based on distorted market signals.

The financial watchdog also expressed intentions to scrutinize manipulation through market-order APIs and coordinated activities that amplify false narratives on social media platforms. These activities not only undermine individual market participants but can also impact the overall integrity of the cryptocurrency ecosystem. The FSS's proactive measures aim to combat these challenges by introducing stricter monitoring protocols.

Recently, the FSS expanded its use of artificial intelligence tools to monitor crypto markets more effectively, reducing reliance on manual identification of manipulation. By leveraging AI, the FSS can analyze vast amounts of trading data in real-time, identifying suspicious patterns that may indicate manipulation. This technological advancement allows for a more dynamic response to emerging threats in the cryptocurrency landscape, enhancing the regulatory framework’s adaptability.

The urgency behind these regulatory actions is palpable, especially in light of a series of troubling incidents in the crypto exchange sector that have highlighted operational risks. The recent case with Bithumb, where nearly all excess Bitcoin mistakenly credited to users during a promotional error was recovered, triggered sharp price swings and compensation measures. This incident underscored the vulnerabilities present within crypto exchanges and prompted an emergency meeting involving the Financial Services Commission (FSC) and the FSS. During this meeting, officials called for a comprehensive review of internal controls among domestic crypto exchanges, signaling a recognition that existing practices may not be sufficient to safeguard market integrity.

The Bithumb incident serves as a critical example of the potential fallout from lax operational standards. Although the exchange reported that no customer assets were lost, the brief price volatility raised alarms about the robustness of existing safeguards against price manipulation and operational errors. Such events can have cascading effects, undermining trust in the crypto market as a whole, and can deter retail investors who are crucial for market liquidity.

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As part of its enhanced scrutiny, the FSS is also reviewing unusual price movements related to the ZKsync token during a maintenance window on Upbit. This scrutiny may escalate into a formal investigation depending on the findings. Upbit's operator, Dunamu, has stated that it has internal systems to flag suspicious activities and cooperates with regulators when information is requested. Dunamu’s proactive stance in addressing potential risks reflects an industry-wide recognition of the need for robust compliance mechanisms in light of heightened regulatory expectations.

The establishment of a task force by the FSS to prepare for the introduction of the Digital Asset Basic Act marks a significant development in South Korea’s approach to cryptocurrency regulation. This second phase of the country’s crypto regulatory framework aims to enhance disclosures, exchange oversight, and licensing standards. By setting clearer guidelines for market participants, the FSS seeks to create a more transparent and stable trading environment, fostering greater investor confidence.

This regulatory evolution comes as South Korea continues to be a prominent player in the global cryptocurrency market. With a burgeoning interest in digital assets among its population, the need for a structured regulatory approach has become increasingly apparent. The FSS's initiatives represent a commitment to ensuring that the growth of the digital asset sector does not come at the expense of market integrity or investor protection.

The landscape of cryptocurrency trading in South Korea is changing rapidly. As regulators tighten their grip, market participants will need to adapt to a more scrutinized trading environment. This could reshape trading strategies, particularly for those engaged in high-risk activities that may attract the FSS's attention. The focus on transparency and accountability is likely to push exchanges to enhance their operational protocols, ensuring compliance with the evolving regulatory framework.

Additionally, the FSS's emphasis on automated detection and AI-driven monitoring exemplifies a forward-thinking approach to regulation. By integrating technology into their oversight processes, regulators can stay ahead of sophisticated manipulation tactics that may emerge in the crypto space. This technological integration may also serve as a deterrent for would-be manipulators, knowing that the likelihood of detection is significantly increased.

The regulatory framework is not just about enforcing rules; it also aims to educate market participants. With the introduction of the Digital Asset Basic Act, there will likely be an emphasis on raising awareness about responsible trading practices and the risks associated with cryptocurrency investments. This educational component is crucial in fostering a more informed investor base that can make sound decisions in a rapidly evolving market.