South Korean legislators are escalating scrutiny of regulatory oversight within the country’s rapidly expanding digital asset market following a significant incident involving the cryptocurrency exchange Bithumb. The exchange erroneously credited customers with Bitcoin amounts that it did not possess, fueling a temporary rush to liquidate assets and prompting questions about the effectiveness of existing supervisory frameworks.
Criticism has intensified towards the Financial Services Commission (FSC), the principal regulatory authority overseeing financial markets, amid concerns that it failed to identify critical flaws in Bithumb’s internal controls despite multiple inspections conducted since 2022. Lawmakers have expressed skepticism regarding the regulator’s ability to monitor systemic vulnerabilities, citing this incident as indicative of broader structural issues, including regulatory gaps and inadequate oversight mechanisms.
The recent error involved Bithumb mistakenly crediting approximately 2,000 Bitcoin per user — a figure vastly exceeding the actual holdings — during a promotional event in February. This misallocation resulted in the distribution of 620,000 Bitcoin that the exchange did not own. Although Bithumb has recovered most of these funds, only around 125 Bitcoin remain unrecovered, equivalent to roughly $8.6 million. The incident has reopened concerns about the security and custody of digital assets managed by authorities, especially given past occurrences involving the disappearance of Bitcoin from law enforcement-controlled wallets.
Additionally, the FSC’s investigation into Bithumb, initially scheduled for completion last week, has been delayed. The authorities have cited the need for further review, with policy observers noting that the probe now extends into earlier similar incidents, including cases from 2021 and 2023 involving asset mismanagement and accidental disclosures.
These developments highlight ongoing challenges faced by South Korean regulators in ensuring robust security protocols and effective oversight of digital assets. The recurrent nature of custody issues and regulatory shortcomings exposes the vulnerabilities within South Korea’s rapidly evolving crypto landscape, necessitating significant reforms to protect investors and maintain market integrity.
