Will Bithumb’s $40 Billion Erroneous Payment Fiasco Trigger a Regulatory Crackdown on Korean Crypto Exchanges?

▲ Bithumb, Bitcoin (BTC), virtual assets/ChatGPT-generated image ©

Bithumb’s $40 billion Bitcoin (BTC) overpayment incident is expected to serve as a निर्णative turning point reshaping cryptocurrency exchange regulation in South Korea. Authorities and political leaders have begun high-intensity restructuring efforts to regulate crypto exchanges not as mere investment platforms but under standards comparable to those applied to traditional financial institutions.

On February 24 (local time), DL News, citing Korean media, reported that Bithumb’s astronomical distribution error triggered a regulatory crackdown on domestic exchanges. On February 6, a Bithumb employee mistakenly set the payment unit to Bitcoin instead of Korean won while attempting to distribute approximately $423 worth of prize money to 249 event winners. The blunder dealt a serious blow not only to Bithumb, which has been seeking a U.S. stock market listing this year, but also to its rival Upbit, which recently suffered a $36 million hacking incident.

Recognizing the severity of the situation, the ruling Democratic Party’s Digital Asset Task Force coordinated with advisors ahead of a meeting on the 24th and moved swiftly to respond. Although the party had previously taken a crypto-friendly stance, the atmosphere shifted dramatically after Policy Committee Chair Han Jung-ae signaled her intention to fast-track regulatory reforms that would elevate exchanges to the same regulatory level as financial companies. Task Force head Lee Jung-moon and the government plan to prepare and review separate legislative bills by the end of this month.

The Financial Supervisory Service (FSS) has extended its official investigation until the end of February, intensifying pressure despite Bithumb recovering most of the lost Bitcoin. Through new accountability provisions, regulators aim to clearly define exchanges’ liability for system errors and require them to hold greater financial reserves to cover potential costs arising from hacking incidents or erroneous payments.

In particular, the FSS is actively pushing to introduce IT control regulations comparable to those applied to traditional financial institutions. Measures under consideration include mandating multi-signature transfer systems to eliminate single points of failure and enhance security, as well as implementing a cooling-off period for large fund transfers to prevent impulsive execution and allow cancellations without penalties, thereby significantly strengthening investor protection safeguards.

In an interview with JoongAng Ilbo, Professor Lee Jung-soo of Seoul National University School of Law emphasized that new legislation should focus on stricter licensing requirements, improved internal control systems, and enhanced supervisory authority for financial regulators. If a comprehensive regulatory framework that also covers stablecoin issuance rules is introduced, South Korea’s digital asset market is likely to face an unprecedented level of institutional oversight.

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