South Korean experts think the dangers of crypto pump and dumps remain, and argue that an AI-powered “prior detection system” would protect investors.
Per the media outlet Enews Today, the experts were speaking at a seminar named “The Present and Future of Cryptoasset Regulation.” The lawmaker Kim Seong-won, of the People’s Power Party, hosted the seminar.
Crypto Pump and Dumps: South Korean Experts Urge More Action
The participants were speaking ahead of the launch of the Virtual Asset User Protection Act, which comes into force on July 19.
However, the speakers said they thought the act would not be enough to safeguard crypto traders in South Korea.
Some urged the government and industry to use tools like AI to help fight back against pump and dump-type price manipulation.
Chae Sang-mi, a professor at the Department of Business Administration at Ewha Womans University, claimed that crypto markets remain vulnerable to “pump and dump” manipulation attempts.
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What Are Crypto Pump and Dump Schemes?
Pump and dump schemes typically see groups of individuals work together to buy low-cap and little-known tokens.
They then spread rumors and (often) fake news online about the coins. They then seek to sell these coins to buyers who have been drawn in by these rumors.
The goal is to create sudden spikes in prices, generating large profits for the groups who coordinate them – but leaving those who bought into the hype with losses.
Pump and dump schemes have plagued South Korean markets in recent years, where low-cap altcoins enjoy considerable popularity. Chae explained:
“In the cryptocurrency market, groups select coins with low market capitalization and low trading volume. These can cause large price fluctuations. […] The nature of the crypto market makes price manipulation easy.”
AI Solutions Provide The Answer?
Chae explained that researchers have been working on “abnormal transaction detection” solutions.
Such solutions, Chae said, “automatically identify” pump and dump schemes “when information is spread through social media platforms such as Twitter [X].”
These AI-powered solutions, Chae claimed, can also “determine whether attempted pumps were successful or not.”
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Chae also claimed that new AI tools could identify trends, such as a rise in USDT purchases that were “related to rises in the price of Bitcoin.”
The professor added that the tools also allowed researchers to “observe significant increases in Twitter [X] bot activity during price pumps.”
This has allowed Chae’s team to “design a predictive model” built using machine learning and AI technology.
Such models, the academic said, could “lay the foundations for pump and dump preventative measures.” Chae said:
“The digital world cannot be governed by policy alone.”
The professor claimed that IT-powered “market surveillance” had become a must for the industry.
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‘Proactive Solutions Needed’
Hwang Seok-jin, a professor at Dongguk University’s Graduate School of International Information Security, also agreed that the crypto market needs AI-powered “abnormal transaction detection systems.” Hwang explained:
“We need to introduce a transaction blocking system that can respond proactively.”
At present, Hwang said, crypto players and regulators rely on “post-facto detection” methods, which often come into force too late to stop market manipulation attempts. Hwang explained:
“By detecting abnormal transactions using AI, big data, deep learning, and so on, we can use existing inforation to increase the detection rate [of price manipulation attempts].”
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Overcoming Legal ‘Limitations’
Meanwhile, Jeong Jae-wook, a partner at Joowon Law Firm, claimed that legal “limitations” were also hampering the fight against crypto price manipulation. Jeong explained:
“[South Korean law] imposes anti-money laundering obligations on virtual asset business operators in accordance with the international-standard Financial Action Task Force guidelines. But it does not institutionalize concepts of investor protection.”
Jeong claimed that there was a “national consensus that it is difficult [for regulators] to respond when […] incidents occur in the cryptoasset sphere.”
Kim, meanwhile, stated that he hoped the Virtual Asset User Protection Act would “guide the market to a safe place.” The lawmaker said:
“The act will serve as a watchdog for problems […] such as […] crypto market manipulation. We will act fast to make rapid improvements. That will help us prevent further market distortions.”
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