South Korea Proposes Crypto Account Freezes to Combat Manipulation

TLDR

South Korea’s Financial Services Commission (FSC) is considering a new mechanism to curb market manipulation within the cryptocurrency sector. This initiative involves temporarily freezing crypto accounts on centralized platforms suspected of illicit activities. The move represents an extension of the current regulatory framework previously applied to the stock market.

The FSC, alongside other financial regulators, is reviewing this proposal to enforce stricter controls on digital assets. The proposal is part of an effort to regulate cryptocurrency trading to align more closely with traditional securities legislation.

Past Enforcement Practices in the Stock Market

The FSC and the Joint Response Team against Stock Price Manipulation have previously utilized account freezing powers in the stock market. Under the amended Capital Markets Act, the team managed to freeze 75 accounts involved in a significant manipulation case, preventing approximately 40 billion KRW (~$27M) in unrealized profits.

This successful precedent in the stock market is directly influencing the current initiative to apply account freezes as an enforcement tool in the crypto market. The FSC aims to extend similar enforcement capabilities to tackle digital asset fraud.

Reactions from Industry Experts

Industry experts have voiced concerns over the potential implications of the proposed account freezes. Rafael Cintron, CEO of Wealthy Expat, cautions against excessive government control, stating that such measures could inadvertently target law-abiding crypto holders.

“Increasingly, governments and banks are viewing crypto as an enemy, assuming that anyone involved is engaging in criminal activity.” Rafael Cintron, Wealthy Expat

Dr. Kirill Kretov, a Blockchain Data Scientist at CoinPanel, points out that account freezes might be an overt response lacking in-depth regulatory reform. He argues that the measures do not address the centralized exchanges’ control over order flows.

Potential Impact on Various Cryptocurrencies

The proposed mechanism will primarily affect cryptocurrency accounts linked to suspected price manipulation on centralized platforms. High-liquidity major assets such as Bitcoin (BTC) and Ethereum (ETH), as well as other Korean-traded altcoins, are likely to be within the scope of these freeze orders.

Korean exchanges such as Upbit and Bithumb could see changes in trading patterns as a result of these potential freezes. Particularly at risk are low-float, high-volatility tokens, which have been involved in past manipulation cases.

Indicators from Previous Regulatory Actions

Historical data from regulatory actions, such as the South Korean Supreme Court ruling on seizable Bitcoin, suggests a possible shift in investor behavior. After the confirmation of the seizable status for exchange-held BTC, retail investors began moving assets towards self-custody solutions.

Should the FSC’s new proposal be implemented, similar asset movements might occur, with investors potentially opting to keep their digital assets off centralized exchanges in search of higher on-chain liquidity and security.