South Korean Crypto Exchange Erroneously Sends $40B BTC to Users Due to Software Glitch; Regulators on High Alert

A popular South Korean cryptocurrency exchange, Bithumb, said over the weekend that it had accidentally sent $40 billion worth of Bitcoin to customers, prompting immediate profit-taking by investors.

What was planned as a promotional reward programme to give $1.40 to each user ended up with each receiving 2,000 bitcoins. The exchange said it has recovered 99.7% of the 620,000 BTC mistakenly paid to customers, and has restricted trading for 695 affected users within minutes of the distributions.

Bitcoin prices on the platform tanked by up to 17% below global market levels before stabilising, but broader crypto markets remain unaffected. '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.

Bithumb officials said the exchange will absorb any losses and even pursue legal action to recover remaining funds. Furthermore, officials also issued a public apology and declared a week of commission-free trading, starting on Feb. 9, adding that it would enhance verification systems and integrate AI to detect abnormal transactions. The incident could push financial firms like Bithumb to tighten internal controls, particularly around promotional payouts.

South Korean Regulators Highlight Structural Issues

South Korea's financial regulators, including the Financial Services Commission (FSS), said the incident 'has exposed the vulnerabilities and risks of virtual assets.' Following an emergency meeting, the regulators said they would initiate an on-site inspection of Bithumb and other crypto exchanges to identify potential irregularities.

'This extremely serious case starkly exposed the structural problems in virtual asset information systems,' FSS Gov. Lee Chan-jin reportedly said. 'It's an issue the government must address,' he stated, adding that the regulator is concerned that transactions were executed based on incorrectly entered data.

'Unless problems with phantom coins and system flaws are resolved in some form, I wonder whether it can become a fully established system,' he stressed. 'If this issue is not addressed, a regulatory and supervisory framework will be needed that could even create licensing risks for exchanges.'

This 'phantom coin' vulnerability arises from the operational structure of many virtual asset exchanges. Investor assets are stored in internal wallets, and transactions are executed through internal ledgers instead of being instantly recorded on public blockchains. Although this strategy lowers transaction overheads, the incident revealed that nonexistent or 'phantom' assets can still be created and circulated within the system.

Regulator Says Recipients Should Return the Bitcoins

'If the users had confirmed with the exchange that they were given the Bitcoins, there would be no fault. But if they sold them and cashed them out without doing so, those users would have an obligation to return the original assets,' Lee said, adding that the situation for those who cashed out was 'catastrophic,' as the BTC price has risen since they sold the coins distributed by accident.

As part of its 2026 strategy, the FSS said it will prioritise monitoring unfair trading, including the use of undisclosed information in the investment banking sector, new business schemes leveraging themes such as AI, as well as politically themed stocks linked to local elections.

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