A major operational failure at Bithumb, one of South Korea's largest cryptocurrency exchanges, has rattled regulators and revived concerns about the structural risks of virtual asset trading after the platform mistakenly distributed roughly $40 billion worth of Bitcoin to users.
The exchange said the incident occurred during what was meant to be a routine promotional reward program, designed to credit each eligible customer with about $1.40 in Bitcoin. Instead, a software glitch resulted in users receiving as much as 2,000 bitcoins each, according to Bithumb, sending a total of roughly 620,000 BTC into customer accounts within minutes.
Bithumb said it recovered about 99.7% of the misallocated bitcoin almost immediately and restricted trading access for 695 affected users shortly after the erroneous transfers were identified. Bitcoin prices on the platform briefly plunged as much as 17% below global market levels amid rapid selling, before stabilizing. The broader cryptocurrency market showed no significant spillover effects.
"We would like to make it clear that this incident is unrelated to external hacking or security breaches, and there are no problems with system security or customer asset management," Bithumb said in a statement. The company added that it would absorb any losses linked to the error and pursue legal action to recover remaining funds that were not promptly returned.
The exchange also issued a public apology and announced a week of commission-free trading starting Feb. 9. Bithumb said it plans to strengthen internal verification procedures and integrate artificial intelligence systems to flag abnormal transactions, particularly in promotional payouts.
South Korea's financial authorities moved quickly to respond. Regulators, including the Financial Services Commission, convened an emergency meeting and announced plans for on-site inspections of Bithumb and other domestic crypto exchanges.
"This extremely serious case starkly exposed the structural problems in virtual asset information systems," said Lee Chan-jin, governor of the Financial Supervisory Service, according to local media. "It's an issue the government must address," he said, warning that transactions were executed based on incorrectly entered data.
Lee raised particular concern over what regulators describe as "phantom coin" risks. "Unless problems with phantom coins and system flaws are resolved in some form, I wonder whether it can become a fully established system," he said. "If this issue is not addressed, a regulatory and supervisory framework will be needed that could even create licensing risks for exchanges."
The vulnerability stems from how many crypto exchanges operate internally. Customer assets are often held in centralized wallets, with trades recorded on internal ledgers rather than being immediately settled on public blockchains. While this structure reduces transaction costs and improves speed, regulators said the Bithumb incident demonstrated how nonexistent or incorrectly generated assets can still circulate within internal systems.
Lee also addressed the legal obligations of users who received the bitcoin. "If the users had confirmed with the exchange that they were given the Bitcoins, there would be no fault," he 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 added that for users who sold the bitcoin immediately, the situation was "catastrophic," as prices later rose.
