South Korea’s financial watchdog has called for stronger cryptocurrency regulations following a major operational failure at a local exchange that briefly sent shockwaves through the market. The incident, involving an accidental distribution of bitcoin worth more than 40 billion dollars, has intensified concerns about the resilience of crypto trading systems and the pace at which digital assets are being integrated into the country’s financial framework.
The episode unfolded when Bithumb mistakenly credited customers with large amounts of bitcoin as part of what was initially interpreted as a promotional reward. The unexpected windfall triggered a rapid selloff on the exchange before trading was halted. Although most of the distributed assets were later recovered, the scale of the error raised alarms among regulators and market participants alike.
Speaking at a press briefing, the head of the Financial Supervisory Service said the incident highlighted structural weaknesses in the electronic systems that underpin virtual asset trading. According to the regulator, the malfunction underscores why additional safeguards and clearer oversight mechanisms are necessary as cryptocurrencies move closer to the traditional financial system. Officials indicated that the lessons from this case will directly inform upcoming legislative efforts.
South Korea has already taken steps to tighten oversight. The Virtual Asset User Protection Act, introduced in mid 2024, aimed to improve investor safeguards after the severe market turmoil of 2022. That downturn was closely associated with the collapse of major crypto projects and exposed gaps in consumer protection. However, regulators now argue that recent events show existing rules may not be sufficient to prevent operational failures or to ensure accountability when they occur.
The government is preparing a follow up bill that would expand regulatory control over digital assets. Policymakers are also debating issues such as stablecoins linked to the Korean won, reflecting broader efforts to define how crypto products should coexist with conventional finance. Authorities emphasized that confidence in system integrity is a prerequisite before digital assets can be treated as legacy financial instruments.
Preliminary findings suggest that nearly all of the bitcoin distributed in error has been clawed back. Of the total amount mistakenly credited, the vast majority was returned to the exchange, including most of the coins that had already been sold before trading was suspended. Regulators stated that customers who profited from the mistake are legally required to return the assets, reinforcing the principle that technical errors do not confer ownership rights.
Market observers noted that the timing of the incident is particularly unfortunate. The crypto industry in South Korea has recently shown signs of renewed momentum, with expectations of policy support encouraging consolidation and investment. The exchange error may delay those developments as regulators reassess risks and tighten requirements.
The watchdog also raised concerns about so called ghost coins, referring to situations where systems reflect holdings that do not actually exist. Resolving such discrepancies, officials said, is essential if cryptocurrencies are to gain broader acceptance and regulatory trust. Until then, authorities signaled they would remain cautious, including on proposals such as spot bitcoin exchange traded products.
