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South Korea’s FSS Launches AI-Powered Crackdown on Crypto Market Manipulation

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TLDR:

  • FSS targets whale trading, cage methods, and racehorse schemes in planned 2026 market investigations 
  • AI-powered systems will analyze abnormal price surges within seconds to identify manipulation patterns 
  • Digital Asset Basic Act preparatory team established to support phase-2 virtual asset legislation 
  • New licensing manuals developed for digital asset service providers and stablecoin issuers nationwide

 

South Korea’s Financial Supervisory Service announced comprehensive plans to investigate virtual asset market manipulation on February 9.

The regulatory body outlined targeted enforcement actions against high-risk trading schemes that disrupt market order.

The FSS will deploy artificial intelligence tools to detect abnormal price movements and suspicious trading patterns.

A preparatory team for the Digital Asset Basic Act was also established to support upcoming phase-2 legislation implementation.

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Planned Investigations Target High-Risk Market Manipulation Schemes

The FSS identified several manipulation methods as priority investigation targets for 2026. Whale trading operations that deploy substantial capital for coordinated buy-and-sell activities will face increased scrutiny.

The cage method, which artificially controls prices of assets with suspended deposits on specific exchanges, represents another enforcement focus.

Racehorse schemes that rapidly inflate prices through concentrated buying at predetermined times also made the list.

Market manipulation through application programming interface orders presents additional concerns for regulators. The automated nature of API-based trading allows manipulators to execute complex strategies at scale.

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Social media platforms have become tools for spreading false information about virtual assets. These coordinated misinformation campaigns can trigger artificial price movements and harm retail investors.

The FSS plans to develop sophisticated detection capabilities using artificial intelligence technology. The new system will analyze virtual assets experiencing abnormal price surges within seconds or minutes.

Automated extraction functions will identify suspect trading periods and participant groups. Text analysis powered by AI will examine communications and social media posts for manipulation indicators.

Fraudulent transactions remain a persistent threat to market integrity and investor protection. The combination of human oversight and technological tools aims to create a more robust enforcement framework.

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Regular monitoring of high-risk trading patterns will enable faster regulatory responses. The FSS expects these measures to deter potential manipulators and restore confidence in virtual asset markets.

Digital Asset Framework Prepares for Phase-2 Legislative Implementation

The Financial Supervisory Service recently formed a preparatory group for the Digital Asset Basic Act. This team will support the effective rollout of phase-2 virtual asset legislation currently under development.

The preparatory group’s mandate includes creating comprehensive regulatory frameworks for market participants.

Coordination with lawmakers and industry stakeholders will ensure practical implementation of new legal requirements.

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Disclosure systems for virtual asset issuance and transaction support are under active development. The preparatory team will establish standardized reporting requirements for token launches and trading platforms.

Transparency measures aim to provide investors with essential information for informed decision-making. Clear disclosure standards will also help distinguish legitimate projects from potentially fraudulent schemes.

Licensing review procedures for digital asset operators and stablecoin issuers require detailed operational manuals. The FSS will create guidelines covering application processes, compliance requirements, and ongoing obligations.

Stablecoin issuers face particular scrutiny given their role in maintaining price stability mechanisms. Digital asset service providers must demonstrate adequate technical capabilities and financial stability for licensure.

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The regulatory body plans to enhance virtual asset exchange fee management and disclosure practices. Current fee structures lack standardization across different trading platforms and service types.

Refined disclosure requirements will enable users to compare costs across exchanges more effectively. The FSS believes transparent fee structures will promote healthy competition and rational consumer choices.

Better fee management should reduce barriers to entry for new market participants while protecting existing users.

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Crypto World

Kalshi Suffers Court Loss in Ohio over Sports Betting Lawsuit

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Law, CFTC, Court, Kalshi, Prediction Markets

The prediction markets platform argued for an injunction against Ohio authorities, claiming that federal commodities laws superseded state laws on sport event contracts.

An Ohio federal court has denied a motion filed by prediction markets platform Kalshi for a preliminary injunction against Ohio state authorities over allegations that the company was operating in violation of gambling laws.

In an order filed Monday, US District Court for the Southern District of Ohio Chief Judge Sarah Morrison denied Kalshi’s request for an injunction that would have blocked the Ohio Casino Control Commission and state attorney general from regulating contracts on the platform, specifically for sports betting.

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According to the judge, Kalshi had failed to show that the sports event contracts available on the platform were subject to the “exclusive jurisdiction” of the Commodity Futures Trading Commission (CFTC).

“Even if this Court were to find that sports-event contracts are swaps subject to the CFTC’s exclusive jurisdiction, Kalshi has not shown that the [Commodity Exchange Act, or CEA] would necessarily preempt Ohio’s sports gambling laws,” said the opinion and order, adding:

“Kalshi argues that Ohio’s sports gambling laws are field and conflict preempted by the CEA when it comes to sports-event contracts traded on its exchange […] Kalshi fails to establish that Congress intended the CEA to preempt state laws on sports gambling.”

Law, CFTC, Court, Kalshi, Prediction Markets
Source: Courtlistener

The denial pushed back against the narrative from CFTC Chair Michael Selig, who said in February that the federal regulator had “exclusive jurisdiction” over prediction markets and threatened lawsuits against any authority claiming otherwise. Kalshi and prediction platforms face lawsuits in other US states over similar allegations involving unlicensed sports betting.

“This Court does not endeavor to explain why the CFTC has not exercised its authority […] with respect to the sports-event contracts,” said the Monday filing in Ohio. “But the agency’s inaction is not proof that the sports-event contracts are regulated by or permissible under the CEA—and the Court has concluded they are not.”

Related: CFTC chair backs blockchain-based prediction markets as ‘truth machines’

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In a statement to Cointelegraph, a Kalshi spokesperson said that the company “respectfully disagree[d] with the Court’s decision, which splits from a decision from a federal court in Tennessee just a few weeks ago, and will promptly seek an appeal.”

CFTC guidance on prediction markets could be looming

Last week, Selig said that the federal regulator was working to provide guidance regarding prediction markets “in the very near future.” The CFTC chair is the sole Senate-confirmed commissioner in a panel normally consisting of five people.

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