Blog Series: Fighting Market Abuse in the Age of AI: Trends, Threats, and Technology
Cryptocurrency is no longer a fringe asset – it’s steadily climbing into the mainstream. With an estimated global market capitalization hovering around $3.9 trillion, crypto is attracting both retail and institutional investors eager for high returns.
Major asset managers are now rolling out crypto-linked products, making digital assets more accessible while introducing layers of regulatory oversight. A Coinbase–EY-Parthenon survey found that 83% of institutional investors plan to increase crypto allocations in 2025, signaling growing confidence and acceptance in traditional finance circles.
Institutional adoption is also expected to accelerate through crypto ETFs, staking programs and DeFi platforms, particularly in regions with clear regulatory guidance like the U.S. and EU. On the U.S. front, a 2025 Executive Order could open the door for 401(k) plans to include crypto, further cementing its mainstream status.
Yet, this rapid growth comes with a cautionary tale. Many jurisdictions lack robust surveillance frameworks, and unregulated crypto markets remain fertile ground for manipulation tactics such as spoofing, front-running and pump-and-dump schemes. With roughly 400 U.S. brokerages now engaging in crypto, compliance risks are front and center. Former CFTC Chair Rostin Behnam explicitly warned that surges in retail participation could make scams and fraud more prevalent.
Different Asset, Same Market Abuse Risks
Despite its digital novelty, crypto is susceptible to familiar market abuse strategies. Its immature infrastructure, anonymous transactions, thin liquidity and limited oversight make it particularly vulnerable.
Common manipulation tactics include:
- Pump-and-Dump: Coordinated buying inflates a coin’s price, followed by a rapid sell-off.
- Wash Trading: Repeated buying and selling creates artificial volume to mislead the market.
- Spoofing and Layering: Posting large, non-executable orders to simulate demand and influence prices.
- Insider Trading: Trading on confidential information, such as upcoming token listings.
- Front Running: Trading based upon impending nonpublic information about a pending customer order.
These schemes underline a critical reality: crypto may be modern and digital, but the risks of market abuse are timeless. For firms, robust monitoring, recordkeeping and surveillance strategies are not optional – they’re essential.
Tightening the Rules: Global Action Against Crypto Market Abuse
Crypto markets, once a regulatory Wild West, are now under intense global scrutiny. Regulators are closing gaps, leveraging advanced technology and demanding comprehensive oversight.
- United States: The SEC and CFTC enforce laws against crypto-related abuses, often relying on whistleblower tips. Project Crypto and the SEC Crypto Task Force provide clarity on token classifications and disclosure standards, while broker-dealers must preserve communications and transactional data. High-profile cases, like Coinbase and Terraform Labs, underscore the cost of non-compliance.
- United Kingdom: The FCA extends existing market abuse laws to crypto derivatives and security tokens. Real-time monitoring is required to detect wash trading and manipulation, linking trade signals with employee communications. The Market Abuse Rules for Crypto assets (MARC) are slated for full implementation by 2026.
- European Union: MiCA (Markets in Crypto Assets Regulation) now provides legal frameworks for crypto markets in Europe. Exchanges and service providers must implement effective anti-manipulation systems and report suspicious activity promptly.
- Asia-Pacific: MAS, ASIC and Hong Kong’s SFC are expanding licensing, surveillance and investor protection requirements, targeting manipulation, pump-and-dump schemes and unregistered platforms.
Across regions, the message is clear: crypto markets now face the same expectations, and scrutiny, as traditional financial markets.
The Big Challenges in Crypto Surveillance
Monitoring for market abuse in crypto is complex:
- 24/7 Trading & Massive Data Volumes: Continuous trading and extreme volatility make it hard to spot manipulation without real-time analytics.
- Pseudonymity & Anonymity: Wallet addresses mask real-world actors, complicating investigation.
- Cross-Exchange & Cross-Border Abuse: Manipulation often spans multiple platforms, requiring aggregated, real-time data analysis.
- Communications Surveillance: Collusion and coordination occur via encrypted apps and niche channels, demanding multi-channel monitoring.
- Social Media Manipulation: Pump-and-dump campaigns and influencer hype need constant vigilance to detect before market impact.
How Firms Are Responding: Holistic, Tech-Forward Solutions
Firms are adopting multi-layered strategies that combine technology, analytics and policy to mitigate crypto market abuse:
- AI-Enhanced Surveillance: Machine learning and anomaly detection analyze trades in real time across multiple exchanges, spotting wash trading, spoofing and pump-and-dump activity.
- Multi-Channel Communications Monitoring: NLP tools examine emails, chat apps and social media to detect collusion, insider trading or unusual sentiment shifts.
- Cross-Platform Data Aggregation: Centralized dashboards consolidate on-chain and off-chain data, giving compliance teams a holistic view of market activity.
- Blockchain Analytics & Identity Mapping: Linking wallet addresses to verified identities enables firms to track pseudonymous transactions and uncover bad actors.
- Social Media & Influencer Oversight: AI tracks posts on Twitter, Reddit, Discord and other channels to detect hype-driven manipulation or undisclosed financial promotions.
- Integrated Case Management: Alerts from trading and communications systems feed into unified platforms, prioritizing and streamlining investigations.
- Continuous Model Calibration: AI models are regularly updated to reflect emerging manipulation tactics, ensuring proactive detection in fast-evolving markets.
By combining these tools with employee training, policy enforcement and regulatory alignment, firms can reduce compliance blind spots while maintaining the speed and flexibility demanded by crypto markets. Holistic, tech-enabled monitoring has become a cornerstone of operational risk management, ensuring market integrity while supporting growth in digital asset trading.
In our next blog in the series, we’ll explore Trend #4: How AI Adoption is Accelerating for Smarter Surveillance and Faster Action. We’ll examine how artificial intelligence is transforming market abuse detection and compliance in ways that legacy systems simply cannot match.