South Korea Considers Freezing Crypto Accounts to Curb Market Manipulation

South Korea’s Financial Services Commission (FSC) is considering a new regulatory tool that would allow it to temporarily freeze crypto accounts suspected of price manipulation. The proposal, under review as part of the country’s second phase of crypto legislation, seeks to prevent illicit profits from being quickly moved or hidden.

The payment freeze system would grant authorities the power to suspend transactions on crypto wallets or accounts linked to suspected manipulation before a formal investigation concludes. This would mirror the approach used in the stock market, where regulators can freeze accounts suspected of manipulation before profits are withdrawn.

The move comes amid growing concerns over crypto-related financial crimes, including price manipulation, tax evasion, and money laundering. South Korea has experienced several high-profile crypto incidents in recent years, including a major exchange hack in 2025 that resulted in over $1 billion in losses.

Why Did This Happen?

The FSC cited the speed and pseudonymity of crypto transactions as a major challenge for regulators. Unlike traditional financial assets, cryptocurrencies can be quickly transferred to private wallets, making enforcement difficult. The current legal framework requires court warrants to freeze assets, which can delay action and allow suspects to conceal their funds.

The proposed payment freeze system is part of a broader effort to align crypto regulation with traditional finance standards. The FSC is also reviewing other measures, including stricter anti-money laundering rules and oversight of stablecoins.

What Are Analysts Watching Next?

Regulators are examining whether the payment freeze system can effectively address market manipulation tactics such as front-running, automated wash trading, and high buy orders. These methods can generate large unrealized profits that can disappear quickly once assets are sold or transferred.

The FSC has held several closed-door meetings to discuss the proposal, including a November 2025 session where officials reviewed a price manipulation case involving digital assets. A task force under the Korea Financial Intelligence Unit (FIU) has also been formed to evaluate the measure.

The proposal may face legal and procedural challenges, as it would grant regulators new powers to act before court approval. Critics have raised concerns about the potential for abuse, though supporters argue the system would serve as a first line of defense against market manipulation.

How Might Markets Respond?

The payment freeze system is expected to increase scrutiny of crypto traders and exchanges. Virtual asset service providers (VASPs) would be required to comply with regulatory orders, similar to how banks execute account freezes in traditional finance.

The move could also have broader implications for global crypto markets, as South Korea's regulatory approach may influence other countries struggling to balance innovation with investor protection.

The FSC has not yet announced a timeline for implementing the measure, but further discussions are expected as the country finalizes its second phase of crypto regulation.