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Research Finds Over 90% of Korean Cryptos Prone to Pump-and-Dump SchemesThe Korea Institute of Finance (KIF) has released a report revealing that 91.3% of South Korean-issued cryptocurrencies, known as “kimchi coins,” are prone to pump-and-dump (P&D) schemes. These schemes involve intentionally spreading false information on social media platforms to manipulate token prices. This is done with the intention of selling the tokens at artificially inflated prices.Photo by Maxim Hopman on UnsplashP&D prevalenceThese manipulative practices were frequently observed during the rapid growth of the cryptocurrency market from 2020 to 2022. Previous research papers indicate that P&D schemes commonly occur on multiple crypto exchanges and typically unfold within a time frame of 10 minutes. It has been observed that cryptocurrencies with lower liquidity and smaller market capitalization are particularly vulnerable to becoming prime targets for these schemes.Korean market and global marketThe Korean cryptocurrency market stands out with its significant number of cryptocurrencies listed on a single exchange, including kimchi coins. This distinction becomes evident when comparing it to the global market. In the Korean market, the top 10 global cryptocurrencies, ranked by their market capitalization, account for 59% of the total market share. Meanwhile, in the global market, they represent 84.9%. This contrast indicates that the Korean market has a larger proportion of alternative coins, also known as altcoins, which are more susceptible to pump-and-dump schemes and other manipulative activities.According to a survey conducted by the Financial Services Commission in the second half of 2022, there were a total of 625 listed coins (excluding duplicate listings), with 389 (62.24%) of them being listed on a single exchange. Among these single-exchange listed cryptos, 223 were kimchi coins, which is equivalent to 57%.OHLCV data analysisIn this KIF paper, research analyst Baik Yeon-ju delved into abnormal price patterns within the Korean cryptocurrency market. She analyzed the hourly Open-High-Low-Close-Volume (OHLCV) data of kimchi coins in October 2021. The study revealed that out of a total of 16,560 hourly price and volume observations, approximately 4.7% exhibited characteristics consistent with P&D schemes. Baik noted that 91.3% (21 of the 23) observed kimchi coins witnessed such movements.Legislative effortsMeanwhile, it is encouraging that the South Korean National Assembly passed the Virtual Asset User Protection Bill during its plenary session on June 30. This legislation, set to go effective in July next year, aims to provide protection for customers’ assets in the virtual asset space. The act not only establishes regulations to combat unfair trading practices but also enforces penalties for non-compliance.Call for further measuresHowever, Baik suggested that policies should be further strengthened to enhance investor protection within the crypto market. In order to achieve this, she proposed the implementation of a monitoring system for virtual asset service operators (VASPs) and the allocation of inspection and investigation personnel, as well as technical resources. It is also necessary to address potential conflicts that may arise with the Act on Real Name Financial Transactions and Confidentiality, particularly if the data required from VASPs falls under the classification of financial transaction information and personal information.Furthermore, considering the lack of transparency surrounding many altcoins regarding their projects and exchange listings, Baik suggests that the upcoming second virtual asset bill should tackle this issue by regulating the issuance and disclosure of these cryptocurrencies. Additionally, she highlighted the importance of conducting research based on empirical data to detect abnormal transactions. This approach enables the recognition of existing issues and the acquisition of concrete evidence, which serves as a credible basis for policymakers to enact relevant legislation.

Gate.HK, cryptocurrency exchange Gate.io’s Hong Kong entity, is discontinuing its operations and has retracted its application for a crypto trading platform license with the local regulator. The company announced on Wednesday a planned "major overhaul" of its platform and has ceased new user registrations and deposits immediately. In compliance with local regulations, Gate.HK will delist all tokens—including major ones like Bitcoin, Ether and USDT—on May 28, urging users to withdraw their assets by August 28. The trading platform, which launched officially in May 2023, aims to re-enter the Hong Kong market in the future after securing the necessary approvals and contributing to the virtual asset ecosystem.Photo by Kelly Sikkema on UnsplashRegulatory environment and industry responseThe withdrawal of the license application, initially submitted in February 2023, was noted on the website of the Hong Kong Securities and Futures Commission (SFC) on May 22, without a disclosed reason for the withdrawal. The SFC mandates that crypto trading platforms without a submitted license application by Feb. 29 must shut down by May 31 or within three months upon receiving further notice. This regulation has impacted several platforms, including HKVAEX and Huobi HK, both of which have recently withdrawn their license applications and ceased operations or faced operational uncertainties in the region. Currently, the SFC is reviewing applications from 20 crypto firms, indicating significant interest among global exchanges in securing retail trading licenses in Hong Kong. 

China’s Legal Daily, a publication that falls under the supervision of the Chinese Communist Party’s (CCP) Central Commission for Political and Legal Affairs, has sounded an alarm regarding cryptocurrencies, raising concerns about their use as potential avenues for corruption. In the newspaper’s New Year’s Day edition, it quoted legal scholars, who had convened at the annual China Integrity and Legal Research Association meeting, who underscored the urgency of addressing the emerging threat posed by digital assets.Photo by Max van den Oetelaar on Unsplash‘Hidden channels’ for briberyIn particular, it focused on views expressed by Associate Professor Zhao Xuejun from Hebei University Law School. Zhao Xuejun warned against the use of virtual currency and electronic gift cards as “hidden channels” for bribery. Notably, these forms of payment, often stored in “cold storage” devices, offer a convenient means for transporting funds abroad, the academic claimed. This development aligns with recent warnings from state agencies, including the Supreme People’s Procuratorate and the State Administration of Foreign Exchange, cautioning against the use of stablecoin Tether in yuan-related foreign exchange transactions, deeming such actions illegal. Anonymity and traceability concernsProfessor Mo Hongxian from Wuhan University Law School explicitly mentioned Bitcoin, highlighting the challenges associated with virtual currencies, such as their anonymity and difficulty in traceability, which can facilitate illegal activities. Despite lacking official recognition in China, Professor Hongxian stressed the need for judicial attention to transactions involving virtual currencies. Although China maintains a cryptocurrency ban, it actively explores blockchain technology for identity verification. The country’s central bank digital currency, e-CNY, still in the pilot stage, has witnessed significant development. Despite its limited geographic distribution, the digital yuan recorded transactions totaling nearly $250 billion in China as of June 2023, with international use noted in commodities sales. Varying degrees of enforcementChina has demonstrated that it can at times take a very hard line on restricting cryptocurrency trading and related activities, while at others, it seems to tolerate such activity or turn a blind eye. Last month China’s Supreme Procuratorate provided details on the nature of the prosecution of over-the-counter (OTC) crypto trader and RenrenBit founder, Zhao Dong. Zhao was handed down a seven year sentence for carrying out illicit crypto business operations. By contrast, an investigation carried out by the Wall Street Journal last year found that business has been thriving for the world’s largest cryptocurrency exchange Binance in China, despite the ban. Other crypto-related activity has been uncovered, flouting capital controls. BitMEX founder Arthur Hayes suggested recently that all wealthy Chinese individuals have access to banking in Hong Kong, allowing them to access, trade and use cryptocurrency. As part of the CCP’s intensified anti-corruption efforts, the focus on cryptocurrency’s potential role in financial crimes underscores the evolving landscape as use of digital currency unfolds. The Legal Daily article emphasizes the need for vigilance and regulatory measures to counteract the perceived threat of corruption facilitated by cryptocurrencies and electronic payment methods.