$1.3 Billion Bitcoin Mishap Triggers Scrutiny of South Korea’s Crypto Oversight
Seoul, 23 Feb 2026 — A faulty promotional routine on Bithumb, one of South Korea’s largest cryptocurrency exchanges, mistakenly credited users with 2,000 BTC each instead of the intended 2,000 won‑worth of tokens (≈ $1.38). The glitch resulted in the system showing a total of about 620,000 BTC — roughly $1.3 billion at current market prices — being “distributed”, far exceeding the exchange’s actual holdings of roughly 42,800 BTC. The incident has reignited criticism of the country’s regulatory framework and prompted a renewed probe into systemic weaknesses in crypto‑exchange supervision.
What happened?
- Date of error: 6 Feb 2026, during a marketing promotion.
- Technical fault: An input‑validation error caused the backend to treat the value “2,000” as BTC rather than local‑currency units.
- Apparent outcome: The platform logged the transfer of 620,000 BTC to user accounts, a volume none of the exchange’s wallets could satisfy.
- Immediate response: Bithumb’s CEO, Lee Jae‑won, publicly admitted the mistake and referenced two smaller, previously corrected errors that will also be examined by regulators.
Regulatory background
South Korea’s Financial Services Commission (FSC) and Financial Supervisory Service (FSS) have performed a series of on‑site inspections of Bithumb:
| Agency | 2022 | 2025 |
|---|---|---|
| FSC | 1 review | 2 reviews |
| FSS | — | 3 reviews |
Despite these checks, none identified the discrepancy between the exchange’s ledger and its actual crypto holdings. Lawmakers from the People Power Party and the Social Democratic Party have seized on the episode to question whether the inspections were overly procedural and whether the agencies possess sufficient technical competence to detect such flaws.
“The Bithumb incident exposes fundamental gaps in internal controls, ledger management and supervisory oversight,” a statement from the Korea Times cited Rep. Kang Min‑guk (People Power Party).
Parallel investigations
The FSS has extended its investigation through February, looking at possible breaches of:
- Investor‑protection rules
- Anti‑money‑laundering (AML) regulations
- Systemic risk controls
In addition, an emergency task force comprising regulators and the Digital Asset eXchange Alliance (DAXA) is auditing the internal controls of other major domestic platforms, including Upbit, Coinone, Korbit and GOPAX. Findings from this broader review are expected to feed into both DAXA’s self‑regulatory guidelines and upcoming legislative proposals on digital assets.
Recent related fallout
The Bithumb blunder follows another high‑profile cryptocurrency mishap: a month earlier, the Gwangju District Prosecutors’ Office disclosed that Bitcoin seized in a criminal case had temporarily vanished after an officer inadvertently accessed a phishing site. The lost assets — 320.8 BTC (≈ 40 billion won) — were recovered on 17 Feb 2026 after the hacker’s wallet voluntarily returned the coins, unable to cash them out. The episode highlighted procedural vulnerabilities within law‑enforcement custodial practices and prompted heightened monitoring of both domestic and foreign exchanges.
Analysis
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Technical competence gap – The Bithumb error underscores a lack of robust validation logic in a high‑frequency trading environment. While the exchange could technically reverse the transaction, the fact that the flaw remained undiscovered for years suggests insufficient internal code reviews and testing.
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Regulatory oversight limits – Repeated FSC/FSS visits failed to surface the discrepancy, pointing to a possible reliance on superficial documentation rather than deep, system‑level audits. As crypto assets become increasingly integrated into financial markets, regulators will need to develop technical expertise comparable to that of the exchanges they supervise.
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Systemic risk implications – Even though the “phantom” 620,000 BTC never left Bithumb’s vaults, the incident could erode user confidence and trigger market volatility. A loss of trust can translate into liquidity squeezes across the broader Korean crypto ecosystem, especially if similar hidden vulnerabilities exist at other exchanges.
- Precedent for stricter controls – The conjunction of Bithumb’s mistake and the prosecutors’ custodial lapse may accelerate legislative action. Potential outcomes include mandatory third‑party code audits, real‑time on‑chain verification requirements, and expanded AML/CTF reporting obligations for crypto‑related entities.
Key Takeaways
| Takeaway | Implication |
|---|---|
| $1.3 bn phantom transfer | Highlights the financial magnitude of a simple coding error in a crypto context. |
| Regulators missed the flaw | Calls into question the depth of current supervisory inspections. |
| Broader industry audit underway | DAXA and authorities are extending reviews to other domestic exchanges, which may lead to tighter self‑regulatory standards. |
| Recent prosecutor mishap | Reinforces the need for stronger custodial procedures across both private and public sectors. |
| Potential legislative push | Expect forthcoming bills aimed at enhancing technical oversight and investor protection in South Korea’s crypto market. |
The Bithumb incident serves as a cautionary tale that, in a market where a single decimal error can create a multi‑billion‑dollar illusion, both exchanges and regulators must align technical rigor with supervisory practices.
For further details, see the original reports in The Korea Times and the statements from the Financial Services Commission and Financial Supervisory Service.
Source: https://cryptopotato.com/bithumb-bitcoin-blunder-1-3b-error-sparks-probe-into-weak-financial-oversight/
