Bithumb’s Bitcoin blooper exposes structural weakness at crypto exchanges: FSS chief

Bithumb’s recent erroneous transfer of more than $40 billion worth of bitcoins exposed the structural problems in virtual asset systems.

Financial Supervisory Service Gov. Lee Chan-jin speaks to reporters during a press conference at Yeouido, western Seoul, on Feb. 9, held to share the organization’s annual policy agenda. Lee said Bithumb’s recent mispayment of 620,000 Bitcoins to its users starkly exposes the structural problems in virtual asset information systems. [FSS]

Bithumb’s recent erroneous transfer of more than $40 billion in Bitcoin exposed the structural problems in information systems at crypto exchanges, said the chief of Korea's financial watchdog on Monday, adding that systemic issues will be strictly reviewed during the second phase of virtual asset legislation.

“This extremely serious case starkly exposed the structural problems in virtual asset information systems,” Financial Supervisory Service (FSS) Gov. Lee Chan-jin told reporters during a press conference to announce his agency's annual policy agenda at Yeouido, western Seoul. “It’s an issue the government must address,” Lee added, noting that the agency is particularly concerned that transactions were executed based on incorrectly entered data.

Bithumb, the second-largest crypto exchange in Korea, mistakenly paid out 620,000 Bitcoins — worth about $41 billion at the time — to 249 users on Friday instead of the 620,000 won ($420) intended for a marketing promotion. Following the incident, questions arose regarding how they were distributed, as Bithumb held only 175 Bitcoins of its own and 42,619 Bitcoins in custodial assets for users as of the end of the third quarter last year.

“Unless problems with phantom coins and system flaws are resolved in some form, I wonder whether it can become" a fully established system, Lee said. “If this issue is not addressed, a regulatory and supervisory framework will be needed that could even create licensing risks for exchanges.”

This "phantom coin" vulnerability stems from the operational structure of many virtual asset exchanges. Customer assets are often held in internal wallets, and transactions are processed through internal ledgers rather than being immediately recorded on public blockchains. While this approach reduces costs associated with frequent transactions, the incident revealed that nonexistent or “phantom” assets can effectively be created and circulated within the system.

The outside of the Bithumb lounge in Samseong-dong is seen on Feb. 9. For a week from that date, Bithumb is reimbursing customers who suffered losses from selling Bitcoins during its recent plunge, caused by the exchange’s mistaken transfer of over $40 billion worth of Bitcoins to its users. [NEWS1]

The misallocation also led to a drop in Bitcoin’s price on the exchange, as some recipients rushed to cash out, flooding the market with sell orders. Of those mistakenly distributed, 99.7 percent were recovered before any transactions occurred. Of the remaining Bitcoins that had already been sold, 93 percent were recovered, leaving approximately 125 Bitcoins unaccounted for.

“If the users had confirmed with the exchange that they were given the Bitcoins, there would be no fault,” Lee said. “But if they sold them and cashed them out without doing so, those users would have an obligation to return the original assets.” He described the situation for those who cashed out as “catastrophic,” as the Bitcoin price has risen since they sold the coins that were distributed by accident.

Lee said it wasn’t easy for the FSS to prevent such an incident due to a lack of staff on relevant teams, many of whom were dispatched to work on digital asset legislation.

As part of its 2026 work plan, the FSS said it will focus on monitoring unfair trading, including the use of undisclosed information in the investment banking sector; new business schemes leveraging themes such as AI and robotics; and politically themed stocks related to local elections, especially as Korea is set to hold local elections in June.

The FSS also plans to expand the joint task force for responding to unfair trading practices, such as stock manipulation, and is preparing to introduce an investigative authority for the special judicial police. To improve accounting transparency, 10 percent of Kospi 200 companies will be picked for annual accounting reviews and audits, and the audit cycle for these companies will be halved to 10 years.

BY JIN MIN-JI [jin.minji@joongang.co.kr]