South Korea pushes crypto circuit breakers after Bithumb transfer error
South Korea’s central bank has asked cryptocurrency exchanges to launch their “regional crackdowns” to halt trading and prevent market panic after a clerical error at Bithumb led to the mistaken transfer of $42 billion to its customers.
Summary
- The Bank of Korea is urging the government to approve trading methods on cryptocurrency platforms to prevent market disruptions caused by operational failures.
- The central bank reports that a lack of internal controls led to the February incident where Bithumb accidentally distributed $42 billion in Bitcoin due to clerical error.
- The new regulatory proposals suggest that exchanges should use automated systems to detect human errors and verify internal asset balances against the blockchain in real time.
The Bank of Korea (BOK) reported in a payment report released on Monday that officials should use trading systems similar to the Korea Exchange to stop operations during sudden price changes.
The recommendation follows a major clerical error in February, when Bithumb, one of the country’s largest exchanges, accidentally distributed more than $40 billion in Bitcoin to its users.
The central bank has highlighted a significant gap in oversight between digital asset platforms and traditional finance. “Currently, the physical asset industry lacks internal regulatory mechanisms and faces lower regulatory intensity compared to established financial institutions,” the BOK noted.
Officials argued that the new rules are important to prevent a repeat of the recent disruption, saying, “As a result, since similar incidents may occur in other physical asset exchanges, it is necessary to strengthen the relevant rules to prevent them in time.”
The proposal comes as South Korean lawmakers are working on a new regulatory framework for the industry. The BOK urged that these specific security measures be included in future regulations “to improve the security and transparency of physical asset exchange operations.”
The Bithumb incident
The push for reform stems from an incident in early February when Bithumb mistakenly sent 620,000 Bitcoin—an estimated $42 billion at the time—to customers. The error occurred when the system processed the money transfer as cryptocurrency instead of the target of 620,000 Koreans, a sum worth only about $400.
The massive influx of coins caused a market crash on the platform. As receivers start selling their windfall, some investors panic, driving down the price.
Although Bithumb was able to halt trading and reverse most transfers within minutes, 1,788 BTC had already been closed. The exchange had to use corporate reserves to cover the $125 million shortfall.
To mitigate such risks, the central bank has suggested that platforms must roll out systems specifically designed to catch “erroneous payments caused by human error.”
The report also recommended a requirement for exchanges to run automated checks that sync internal records with blockchain data to quickly identify any asset discrepancies.
