South Korean regulators scrutinize Upbit’s 1000% volatility spike

Seoul, South Korea – February 2025 – South Korea’s Financial Supervisory Authority begins a preliminary market surveillance review into ZKsync’s unusual 1000% price fluctuation on the Upbit exchange, marking another significant regulatory action in Asia’s evolving crypto landscape. The investigation comes in the wake of unprecedented volatility that has sparked widespread suspicions of market manipulation within the global crypto community and highlights growing regulatory concerns about exchange integrity and investor protection.

ZKsync price manipulation allegations trigger regulatory response

In response to the Korea Economic Newspaper report, the Financial Supervisory Service’s Virtual Asset Investigation Bureau confirmed that it conducted a preliminary examination on February 3, 2025. In an official statement, the department said it was “currently securing relevant data and reviewing the details” of the February 1 incident. The regulator stressed that this preliminary examination could be escalated to a formal investigation depending on the outcome of the severity assessment. This development represents South Korea’s continued proactive stance towards monitoring the virtual currency market since enacting the Comprehensive Virtual Asset User Protection Act in 2024.

Market surveillance experts note that a preliminary review typically includes:

• transaction data analysis From exchanges and related wallets
• Order book restructuring during periods of volatility
• Comparison of mutual exchanges trading pattern
• Tracking your wallet address for potential collaborative activities.

The incident occurred during Upbit’s scheduled system maintenance period, raising further questions about the exchange’s infrastructure and market fairness. Meanwhile, blockchain analysts observed unusual trading patterns prior to dramatic price movements, such as concentrated buy orders from previously inactive accounts.

Investigation status and historical precedent of Upbit Exchange

Upbit, operated by Dunamu Inc., represents South Korea’s largest cryptocurrency exchange by trading volume, processing approximately 80% of the country’s cryptocurrency transactions. The platform has faced regulatory scrutiny in the past, including an investigation in 2018 that resulted in the indictment of executives on fraud charges. As a result, the current ZKsync situation occurs within a context of increasing regulatory expectations and exchange accountability requirements.

Comparative analysis reveals significant differences between the price trends of Upbit and ZKsync on other global exchanges during the February 1st incident.

This discrepancy between Upbit and the international exchange immediately raised red flags among market surveillance experts. Additionally, this timing coincided with reduced liquidity during maintenance, which could have further exacerbated the price impact of concentrated trading activity.

Evolution of the regulatory framework in South Korea

South Korea’s regulatory approach has evolved significantly since the crypto boom in 2017. The Financial Services Commission established the Virtual Assets Investigation Bureau in 2023 to specifically address market manipulation concerns. This specialized unit operates with expanded powers under the Virtual Asset User Protection Act of 2024 and is required to:

• Real-time transaction monitoring For all registered exchanges
• mandatory reporting suspicious transaction patterns
• Enhanced customer protection Measures including reserve requirements
• severe penalties In case of market manipulation crime

Currently, the regulatory framework requires exchanges to maintain transaction records for seven years and to implement sophisticated monitoring systems that can detect wash trading, spoofing, and pump-and-dump schemes. These requirements reflect lessons learned from past crypto market incidents in South Korea, such as the 2022 Terra Luna collapse, which affected approximately 280,000 South Korean investors.

Technical analysis of ZKsync volatility events

Forensic blockchain analysis revealed a specific pattern surrounding the February 1st volatility event. According to on-chain data, approximately 15 wallet addresses accumulated substantial ZK positions in the 48 hours before the price spike. These addresses performed coordinated purchasing activity that started 30 minutes before Upbit’s maintenance period, creating artificial demand pressure in normal illiquid conditions.

The technical sequence unfolded as follows.

1. Accumulation before maintenance: 14:30-15:00 KST – Purchase 4.2 million ZK tokens with multiple addresses
2. Maintenance window volatility: 15:00-16:30 KST – Price increased from $0.42 to $4.57
3. Distribution after maintenance: 16:30-22:00 KST – Profit of approximately $18.7 million realized through collaborative sales
4. Market normalization: After 22:00 KST – Price stabilizes around $0.51

Although this pattern exhibits characteristics consistent with a classic pump-and-dump approach, the researchers stress that a comprehensive analysis is required before a formal conclusion can be drawn. The FSS investigation will specifically examine whether exchange insiders had advance knowledge of the timing of maintenance that could have facilitated coordinated activity.

ZKsync protocol basics and market position

Developed by Matter Labs, ZKsync represents a layer 2 scaling solution for Ethereum that utilizes zero-knowledge rollup technology. The protocol launched its native ZK token in June 2024 through a widely public airdrop to early users. Since its launch, ZKsync has processed over 45 million transactions and secured approximately $850 million in total locked-up across its ecosystem.

Despite these technical fundamentals, ZKsync’s market capitalization of $420 million positions it as a mid-cap cryptocurrency, making it potentially vulnerable to coordinated trading activity. The protocol’s legitimate technical merits stand in sharp contrast to the February 1st trading pattern, highlighting that even fundamentally sound projects can experience artificial volatility.

Global regulatory impact and market impact

The South Korean investigation comes at a time when global regulators are increasingly concerned about the health of crypto markets. The US Securities and Exchange Commission has brought 24 enforcement actions related to cryptocurrency market manipulation since 2023, while European regulators under the MiCA (Markets in Cryptoassets) Act have introduced similar oversight frameworks. This coordinated global approach reflects the growing recognition that crypto markets require traditional financial market protection.

The immediate market implications of the study include:

• Increased volatility premium For assets listed on the Korea Exchange
• Strengthening due diligence Opinions on exchange selection by institutional investors
• Accelerate adoption Implementation of exchange-wide surveillance technology
• Concerns about regulatory arbitrage As jurisdictions have introduced different standards;

Market participants generally believe that rigorous research is positive for long-term ecosystem health, despite the potential for short-term uncertainty. Transparent regulatory measures will ultimately strengthen investor confidence and encourage institutional participation, but the size of the crypto market is currently only 35%, according to a 2024 industry report.

conclusion

The Korean Financial Supervisory Service’s investigation into ZKsync’s 1000% price fluctuation on Upbit will be an important test case for cryptocurrency market regulation in 2025. This investigation into ZKsync’s price manipulation demonstrates the regulator’s increasing sophistication in monitoring the digital asset market and its commitment to maintaining a fair trading environment. The results could influence global regulatory approaches to the oversight of virtual currency exchanges and establish important precedents for addressing market manipulation in decentralized financial ecosystems. As the investigation progresses, market participants are awaiting findings that could reshape exchange operations, monitoring requirements, and investor protection standards across the international cryptocurrency market.

FAQ

Q1: What prompted the FSS investigation into ZKsync’s price fluctuations?
The Financial Supervisory Service began reviewing ZKsync’s price on February 1, 2025, during Upbit’s system maintenance period, following an approximately 1000% price hike and subsequent crash. The unusual volatility and timing raised suspicions of potential market manipulation within the crypto community.

Q2: How does South Korea’s regulatory approach compare to other countries?
South Korea has introduced one of the most comprehensive cryptocurrency regulatory frameworks in the world through the Virtual Asset User Protection Act of 2024. The country has established a specialized Crypto Asset Investigation Office with powers similar to traditional financial market regulators, surpassing many other jurisdictions in specific monitoring and enforcement capabilities.

Q3: What are the possible consequences if market manipulation is confirmed?
If market manipulation is confirmed, significant penalties can be imposed, including fines of up to three times the illegal profits, suspension of exchange licenses, and criminal prosecution of those involved. In previous cases in South Korea, similar charges have resulted in sentences of up to seven years in prison.

Q4: What impact does this research have on ordinary crypto investors?
This study shows that regulators care about the health of the market, which may increase long-term investor confidence. However, short-term impacts may include increased volatility for South Korean exchange-listed assets and possible temporary withdrawal processing delays as exchanges tighten compliance measures.

Q5: What timeline should observers expect for the findings?
A preliminary review typically concludes within 30 to 60 days, after which regulators decide whether to proceed with a formal investigation. Formal investigations typically take three to six months to comprehensively analyze and gather evidence before potential enforcement action.