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In the wake of an unprecedented distribution accident in which more than $40 billion worth of so-called “ghost coins” were mistakenly issued into thin air, South Korean cryptocurrency exchange Bithumb is facing the biggest crisis in its history, as it confronts the possibility of a heavy sanction from regulators— a six-month business suspension.
According to cryptocurrency media outlet Bitcoinist on March 10 (local time), the Financial Intelligence Unit (FIU) under the Financial Services Commission (FSC) issued a prior notice of sanctions against Bithumb for serious violations of Anti-Money Laundering (AML) and Know Your Customer (KYC) obligations under the Act on Reporting and Use of Certain Financial Transaction Information. The proposed measures include a six-month partial business suspension and disciplinary action against CEO Lee Jae-won. Authorities particularly took issue with Bithumb’s alleged failure to prevent interactions with unregistered overseas virtual asset service providers.
If the sanction is finalized, Bithumb will suffer a critical blow, as it will be completely prohibited from providing virtual asset transfer services to new customers for six months. However, deposits and withdrawals of Korean won and virtual assets for existing customers will continue as normal. Bithumb stated that the current notice represents a preliminary measure and that the final level of sanctions could be adjusted following the deliberation committee meeting scheduled for the end of this month, as it works to contain the fallout.
The regulatory storm was triggered by the so-called “ghost Bitcoin (BTC)” incident that occurred on February 6. During an in-house promotional event, a fatal input error by an employee resulted in 620,000 bitcoins—worth more than $40 billion—being mistakenly credited to the accounts of 249 customers. Fortunately, 99% of the erroneously distributed assets were swiftly recovered, but the massive incident, which nearly distorted prices across the entire crypto market, starkly exposed the exchange’s poor ledger management.
The gravity of the situation becomes even more apparent when compared to Bithumb’s actual asset holdings at the time. According to data previously submitted to regulators, the exchange held only 175 bitcoins of its own during the incident, and even when including all customer deposits, the total amounted to fewer than 50,000 bitcoins. The fact that internal control systems failed to block an abnormal astronomical transfer far exceeding actual holdings became a decisive reason for intense criticism from financial authorities.
As political pressure mounted, financial authorities immediately formed an emergency task force with the Digital Asset eXchange Alliance (DAXA) and launched a full-scale response. Comprehensive asset verification and system-wide inspections are currently underway targeting the country’s four major exchanges—Upbit, Coinone, Korbit, and GOPAX. Kim Ji-ho, spokesperson for the Democratic Party of Korea, stated that the incident went beyond simple human error and revealed fundamental structural weaknesses in exchanges’ internal control systems, warning that stricter legislative regulations for the domestic virtual asset market are likely to follow.
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