TLDR
- FSS says Bithumb’s $44B Bitcoin error shows deep flaws in crypto system controls.
- Regulators retrieved 99.7% of the BTC mistakenly distributed to 695 users.
- New legislation is planned to widen oversight on digital assets and exchanges.
- The FSS will use AI to detect real-time manipulation and illegal crypto trading.
- New rules will require CEOs to be directly accountable for IT system failures.
South Korea’s Financial Supervisory Service (FSS) said this week that stronger rules are urgently needed in the cryptocurrency sector. The announcement came after local crypto exchange Bithumb accidentally distributed over $40 billion worth of Bitcoin to users due to a system error during a promotional event.
The mistaken distribution led to a temporary price drop on the exchange, exposing vulnerabilities in the digital asset infrastructure.
FSS Points to Structural Problems in Virtual Asset Systems
FSS Governor Lee Chan-jin addressed the situation in a press conference. He stated that the incident exposed key weaknesses in the electronic systems managing virtual assets. He said,
“There are many areas we are seriously looking into, and we are particularly worried about the issue of electronic systems.”
The agency confirmed it will work on legislative measures to better integrate virtual assets into the traditional financial system. The FSS added that the current regulatory structure needs to evolve as the digital asset market grows. The situation, according to the watchdog, shows the need for better internal controls and emergency responses within exchanges.
Government Plans New Crypto Laws and Enforcement Tools
The South Korean government had already passed the Virtual Asset User Protection Act in 2024. However, officials now say an additional law is in progress to expand oversight. The new law is expected to tighten control over crypto-related IT systems, security, and trading behavior.
The FSS also said it is building real-time monitoring tools that use artificial intelligence. These tools will scan for suspicious trading activity by the second.
The system will include text analysis to track pump-and-dump schemes driven by online platforms. Officials said this would help detect abnormal trading linked to coordinated misinformation.
Exchange Recovers Most Bitcoin but Concerns Remain
Bithumb confirmed it accidentally distributed around 620,000 BTC during a reward event. Around 1,786 BTC had been sold before the exchange froze transactions. According to investigators, 99.7% of the distributed coins have been recovered. About 93% of the sold coins were also retrieved.
The FSS clarified that users who sold the coins are still legally required to return them. There were also concerns raised in media reports that Bithumb may have distributed more Bitcoin than it held.
The FSS said this issue, referred to as “ghost coins,” would need to be resolved before digital assets can be treated as traditional financial assets.
Crypto Oversight to Expand Amid Presidential Push for Reform
President Lee Jae-myung’s administration is pursuing broad reforms to address what he called “cruel financial practices.” The FSS said it is preparing for inspections of exchanges if internal control failures are found.
Future rules will introduce penalties for IT system errors and increase accountability for top executives. CEOs and chief information security officers will be required to take more responsibility for technical breakdowns and unauthorized transactions.
The watchdog said these measures aim to prevent future incidents and build trust in South Korea’s growing digital asset market.
