Bithumb’s Bitcoin Error Sparks Calls for Global Regulatory Clarity

SEOUL (Azat TV) – A clerical error at South Korea’s Bithumb, the nation’s second-largest cryptocurrency exchange, inadvertently distributed 620,000 Bitcoins (BTC) to promotion participants in early February 2026. This unprecedented misallocation, valued at approximately KRW 60 trillion, has rapidly escalated beyond a technical glitch, triggering a full financial inspection by South Korean authorities and becoming a pivotal case study in the ongoing global debate over how centralized exchanges define and manage “held assets” within digital markets.

The incident, which occurred on February 6, is now at the forefront of discussions as nations worldwide grapple with establishing robust digital asset legislation. Regulators and policymakers are closely examining Bithumb’s operational failures to inform future frameworks, highlighting the systemic vulnerabilities inherent in ledger-based crypto trading systems and raising urgent questions about user protection and market integrity.

Bithumb’s Bitcoin Blunder and Immediate Fallout

The monumental error originated from a simple unit input mistake in Bithumb’s event reward system. The exchange had intended to distribute 620,000 Korean Won (approximately USD 460) among 249 promotional winners but mistakenly entered the unit as “Bitcoin,” leading to the system distributing 620,000 BTC instead of 620,000 KRW, as reported by KoreaTechDesk. While 99.7% of the erroneously issued coins were swiftly reclaimed before being processed on-chain, approximately 1,788 Bitcoins were sold by users before the rollback could be fully completed.

Bithumb has since confirmed that 93% of those sales have been recovered in fiat currency, with the remaining 7% to be retrieved in other crypto assets like Ethereum. Despite the rapid recovery, the incident caused a temporary crash in Bitcoin prices on the Bithumb platform, plummeting from around 95 million to 81.1 million won. This sharp decline triggered forced liquidations in 64 lending accounts, with authorities estimating direct losses near 1 billion won and broader consumer exposure due to auto-liquidated collateralized accounts.

South Korea’s Intensified Regulatory Scrutiny

The Financial Supervisory Service (FSS) swiftly converted its preliminary on-site review of Bithumb into a high-intensity inspection on February 10, just three days after initial checks began. This rapid escalation underscores the gravity with which South Korean authorities view the incident’s implications for the nation’s financial system. FSS Governor Lee Chan-jin explicitly stated that the situation “could shake trust across the entire virtual asset market” and emphasized that the inspection findings would directly inform the government’s upcoming second-phase digital asset legislation.

The inspection is meticulously reviewing Bithumb’s asset custody structure, ledger management, and internal control systems. Additional staff have been deployed, and the inspection is expected to continue as authorities investigate whether the misallocation violates the Virtual Asset User Protection Act, which mandates service providers hold the same quantity and type of assets entrusted by users. At the time of the error, Bithumb’s actual Bitcoin holdings were approximately 46,000, meaning the system temporarily allowed payouts nearly 14 times greater than its real assets.

The National Assembly Political Affairs Committee also convened an emergency hearing on February 11, calling Bithumb CEO Lee Jae-won, Vice President Moon Sun-il, and FSS Governor Lee Chan-jin to testify. Lawmakers from across the political spectrum criticized Bithumb for its internal control failures and discussed potential revisions to cap major shareholders’ ownership in exchanges and establish standardized real-time asset verification requirements for all platforms.

The ‘Ghost Coin’ Problem and Centralized Exchange Oversight

The Bithumb incident has starkly illuminated structural vulnerabilities within centralized exchanges (CEXs) that rely on ledger-based trading systems. Unlike direct blockchain settlements, CEXs record transactions internally, updating user balances in their databases. While this enables high-speed trading, it creates a dependency on impeccable ledger integrity and robust internal controls, a system Bithumb defends as an industry norm also used by major exchanges like Binance and Coinbase.

This “ghost coin” problem, where internal balances temporarily exceed actual holdings, presents a significant challenge for regulators. In traditional finance, strict segregation between client and proprietary assets is paramount. However, in crypto markets, exchanges often serve as both broker and custodian, a structure that amplifies systemic risk when errors, or even malicious actions, occur. This blurring of lines between recorded balances and real custody is a central theme in global regulatory discussions.

Global Regulatory Implications of the Bithumb Case

The Bithumb error has quickly become a critical reference point in global regulatory discussions, particularly as other countries work to develop or refine their digital asset legislation. As the Economic Times noted, the South Korean exchange error has already triggered calls for stronger oversight internationally. The incident provides a concrete example of the risks associated with inadequate internal controls and the lack of real-time, on-chain verification for customer assets held by centralized entities.

Policymakers in various jurisdictions, including the United States, are currently deliberating comprehensive regulatory frameworks for cryptocurrencies. The Bithumb case is likely to influence these discussions, pushing for stricter licensing, compliance frameworks aligned with international standards like those from the OECD and FATF, and more precise definitions of asset custody and segregation. The event also highlights the potential for renewed interest in decentralized exchange (DEX) architectures, which inherently prevent such “phantom” asset issuance by operating without a central intermediary.

Bithumb has announced a comprehensive compensation plan, offering affected users 110% of their losses, a 20,000 won payout to all platform users during the incident window, one week of fee-free trading, and the establishment of a 100-billion-won permanent customer protection fund. Simultaneously, the Financial Services Commission, the FIU, and the FSS have expanded emergency inspections to four other major South Korean exchanges—Upbit, Coinone, Korbit, and GOPAX—to review their asset custody verification and internal control systems. The findings from these inspections are expected to inform both self-regulation efforts by DAXA (Digital Asset Exchange Alliance) and the government’s forthcoming Digital Asset Framework Act.

The Bithumb incident serves as a stark reminder that as digital assets become increasingly integrated into the global financial system, the operational integrity and regulatory oversight of centralized exchanges are paramount. Its fallout is not merely a South Korean issue but a universal governance test that will likely shape the blueprint for how regulators worldwide move from trusting internal data to verifying actual assets in the burgeoning digital economy.