South Korea Proposes Pre-emptive Crypto Account Freezes to Curb Market Manipulation
South Korea’s Financial Services Commission (FSC) is proposing a system to allow pre-emptive freezing of crypto accounts suspected of holding illicit gains from market manipulation. The proposal—discussed since November and revisited in a January 6 meeting—would permit regulators to block withdrawals, transfers and payments from suspicious accounts before assets can be concealed, replacing the current requirement to wait for court warrants. Officials cited an equity-market payment-suspension mechanism (used in a KRW 100 billion manipulation case) as a model. Targeted behaviors include pre-purchasing, automated repetitive trades, wash trading, spoofing and pump-and-dump schemes. The measure may be folded into Phase Two of the Virtual Asset User Protection Act, whose submission has been delayed to early 2026 amid FSC and Bank of Korea disagreements on stablecoin rules. The FSC’s draft also reportedly includes investor-protection measures such as no-fault liability for crypto operators, bankruptcy-risk isolation for stablecoin issuers, disclosure obligations and strict liability for hacks or system failures. Traders should watch for the formal legislative text and implementation rules—especially the scope of freezing powers, criteria for suspicion, required court oversight, cross-exchange and self-custody treatment—as these details will determine market liquidity, withdrawal behaviour, surveillance/compliance burdens and counterparty risk.
Neutral
The proposal is likely neutral for crypto price action overall. Short term, announcements of pre-emptive freezing powers can spur withdrawal and sell pressure as traders move assets off exchanges or to self-custody to avoid administrative freezes, creating localized volatility and temporary liquidity drains. Conversely, the measure targets manipulation and could reduce illicit trading activity; over the medium to long term that may support market integrity and attract institutional capital, which is bullish. However, the immediate effect depends on implementation details (scope of powers, criteria for suspicion, judicial oversight, cross-exchange enforcement). Increased compliance costs and stricter surveillance for domestic exchanges could compress spreads and reduce high-risk trading strategies, while unclear rules could raise counterparty risk and behavioral change among retail traders. Because the net directional pressure is ambiguous and highly dependent on final rules and market reaction, the overall classification is neutral.