South Korea Probes Bithumb’s $1.3B Bitcoin Error, Exposing Regulatory Gaps

The crisis at Bithumb unfolded on February 6 when a promotional event went disastrously wrong. Instead of crediting users with coins worth 2,000 won (approximately $1.38), a system error mistakenly credited them with 2,000 Bitcoin each. This single mistake caused Bithumb’s platform to register a total of 620,000 Bitcoin being “distributed” to users. The staggering scale of this error is highlighted by the fact that Bithumb’s actual holdings at the time were only about 42,800 BTC, making the recorded distribution a virtual impossibility that should have triggered immediate internal alarms.

What makes this technical failure a regulatory scandal is that it went undetected despite repeated inspections by South Korea’s top financial watchdogs. According to Rep. Kang Min-guk of the People Power Party, the Financial Services Commission (FSC) reviewed Bithumb once in 2022 and twice in 2025, while the Financial Supervisory Service (FSS) carried out three inspections in the same period. None of these examinations identified the critical discrepancies between the exchange’s actual holdings and its accounting records, or the vulnerability that allowed a single employee to trigger such massive, undetected coin transfers.

Lawmakers have been scathing in their assessment. Rep. Han Chang-min of the Social Democratic Party questioned whether the regulators’ inspections were merely procedural exercises, noting attempts to deflect responsibility onto Bithumb itself. The incident has been condemned as exposing deeper systemic weaknesses in internal controls, ledger management, and the very foundation of regulatory supervision over the country’s burgeoning crypto industry.

In response to the blunder, the FSS has significantly extended its investigation through February. The probe is now examining potential violations across several critical areas, including investor protection protocols, anti-money laundering (AML) compliance, and fundamental system integrity flaws. Adding to the scrutiny, Bithumb CEO Lee Jae-won acknowledged two smaller prior errors that were subsequently recovered, which the FSS will also review as part of its expanded mandate.

The regulatory fallout has rapidly spread beyond Bithumb. An emergency team comprising authorities and the Digital Asset eXchange Alliance (DAXA)—the industry’s self-regulatory body—is now conducting urgent reviews of asset verification and internal control systems at South Korea’s other major exchanges. This list includes prominent platforms such as Upbit, Coinone, Korbit, and GOPAX. The findings from these reviews are expected to have a direct and substantial impact, informing both updates to DAXA’s self-regulatory rulebook and the shaping of future formal cryptocurrency legislation.

This sector-wide examination underscores a pivotal moment for South Korea’s crypto market. The Bithumb error has acted as a catalyst, forcing both regulators and the industry to confront the inadequacies of current oversight mechanisms. The results will likely determine whether the country adopts a more stringent, hands-on regulatory approach or empowers a more robust self-regulatory model through DAXA.

The Bithumb incident is not an isolated case of institutional failure in South Korea’s handling of digital assets. It follows closely on the heels of another major embarrassment involving the Gwangju District Prosecutors’ Office. Authorities there reported that 320.8 Bitcoin, worth 40 billion won and seized in a criminal case, had gone missing after prosecutors accidentally accessed a phishing site while checking the wallet last August. The cryptocurrency, originally confiscated from the daughter of a couple arrested for operating a large illegal overseas gambling site, had been converted from criminal proceeds.

In a twist of fortune, prosecutors announced on February 17 that all of the lost Bitcoin had been recovered. The funds were voluntarily returned from the hacker’s electronic wallet to the prosecution’s wallet after the hacker found themselves unable to cash out the stolen coins. While this recovery prevented a permanent loss, the episode highlighted a troubling pattern of vulnerability, from private exchange platforms to public law enforcement agencies, when it comes to securing digital assets.

Taken together, the Bithumb blunder and the prosecutors’ near-loss paint a clear picture of a financial ecosystem struggling to keep pace with the risks inherent in cryptocurrency. They reveal gaps in technical infrastructure, employee training, internal audit processes, and external regulatory validation. As South Korea’s financial authorities and the DAXA-led emergency team pore over the books at Upbit, Coinone, and others, the core challenge remains: building a supervisory framework that is as sophisticated and resilient as the technology it aims to govern.