South Korea beefs up oversight as FSS steps up audit of Bithumb systems
South Korea’s financial regulators are stepping up scrutiny of the cryptocurrency sector after a costly operational failure at one of the country’s largest digital asset exchanges reignited concerns about systemic risk, internal controls and market integrity.
On February 10, 2026, the Financial Supervision Service confirmed that it had expanded its audit and oversight review of Bithumbfollowing an incident that briefly injected hundreds of thousands of Bitcoin into the platform’s internal system due to human error.
The move signals a broader shift in regulatory stance as South Korea accelerates efforts to bring cryptocurrency exchanges closer to standards applied to banks and securities firms.
A costly mistake with implications for the entire market
The investigation stems from an incident that occurred on February 6, when a Bithumb employee mistakenly distributed 620,000 Bitcoin during a promotional event. The error occurred when the employee entered “BTC” instead of “Korean won” as the reward unit, inadvertently crediting users with digital assets worth approximately $43 billion at prevailing market prices.
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Crucially, the Bitcoin credited to users did not exist on the blockchain. Instead, the assets appeared only on Bithumb’s internal ledger, creating what regulators and industry experts now call “ghost coins.”
At the time of the incident, Bithumb reportedly had approximately 46,000 Bitcoin in actual reserves, meaning that the erroneous credit exceeded its actual holdings by more than fourteen times. While no blockchain transfer occurred, the temporary appearance of massive balances sparked panic selling within the platform, causing Bitcoin prices on Bithumb to drop by approximately 15 percent within minutes.
The Financial Supervisory Service is now examining how a single employee could initiate a system-level event capable of destabilizing market prices and user confidence.
Understanding the “ghost coin” problem
As South Korea investigates Bithumb, regulators are focusing on a structural weakness exposed by the incident: the disconnect between internal exchange ledgers and on-chain reality.
Ghost coins are digital assets that appear within an exchange’s internal accounting system but are not backed by actual blockchain balances. While these systems are common for their speed and efficiency, they require strict safeguards to prevent unauthorized or erroneous credit creation.
In this case, users were able to view and, in some cases, attempt to trade the credited Bitcoin before the exchange intervened. The sudden increase in sell orders overrode internal controls and caused abnormal price movements.
Experts say the event highlights a critical vulnerability in centralized exchanges, where internal databases can momentarily override the truth on-chain, creating risks not only for users but also for overall market stability.
Emergency measures and damage control
Bithumb moved quickly to contain the fallout. About 35 minutes after detecting the error, the exchange froze 695 accounts and suspended all withdrawals to prevent further trading or asset movements.
According to disclosures reviewed by regulators, the exchange has since recovered about 99.7 percent of funds credited in error. However, some 125 Bitcoin remain missing, representing a residual loss that remains under investigation.
To mitigate reputational damage and restore trust, Bithumb announced compensation measures for affected users. The exchange pledged to refund verified losses with an additional 10 percent bonus and established a protection fund of 100 billion won, equivalent to approximately $68 million, to strengthen user safeguards in the future.
While some market participants welcomed these measures, regulators have indicated that compensation alone will not close the case.
Lawmakers push for structural reform
The incident has drawn the attention of senior lawmakers and political advisers, many of whom argue that the ghost coin phenomenon poses systemic risks comparable to unsupported leverage in traditional finance.
Several proposals are currently being debated in Seoul, including limits on individual holdings in cryptocurrency exchanges. Under one plan, no shareholder would be allowed to control more than 15 to 20 percent of an exchange, a measure aimed at improving governance and internal accountability.
Officials believe concentrated ownership can weaken oversight structures, particularly in fast-moving technology companies where decision-making authority may be restricted.
In parallel, the Financial Supervision Service is reviewing whether mandatory internal control standards should be introduced at all authorized exchanges.
Dual approval systems under review
Among the measures being considered is the requirement for “double approval” mechanisms for large asset transfers or balancing adjustments. Under such a system, any transaction exceeding a predefined threshold would require authorization from at least two independent parties.
This approach reflects the safeguards used in banking, treasury operations and securities clearing systems, where the separation of duties is designed to prevent both fraud and accidental errors.
Regulators are also reviewing Bithumb’s compliance history, including security incidents reported in 2024 and 2025, which had already put the exchange under increased scrutiny before the latest event.
Market confidence and price stability
While the broader cryptocurrency market did not experience sustained disruption beyond Bithumb’s platform, analysts warn that similar incidents on multiple exchanges could amplify volatility and erode trust.
The episode highlights a persistent challenge for centralized crypto platforms: maintaining speed and usability without sacrificing control and transparency.
Market observers note that as digital assets become more integrated into mainstream finance, tolerance for operational failures is rapidly decreasing.
Expert Opinions on the End of the “Wild West” Era of Cryptocurrencies
Industry analysts say South Korea’s decision to aggressively investigate Bithumb reflects a turning point in regulatory philosophy.
For much of the last decade, cryptocurrency regulation focused on monitoring, licensing, and warnings to consumers. In 2026, that approach will evolve toward direct intervention, enforcement, and mandatory system design requirements.
Experts hope regulators will push for advanced monitoring systems capable of detecting abnormal activity in real time. These systems can incorporate artificial intelligence to detect unusually large credits, transactions or balance changes before they affect the market.
While such measures could slow certain currency operations, proponents argue that they are essential to building long-term confidence.
A broader signal for the global crypto industry
South Korea has long been considered a bellwether in cryptocurrency regulation in Asia. Actions taken by its regulators often influence political debates in neighboring jurisdictions.
The Bithumb case may accelerate similar reviews in other markets, particularly as regulators around the world grapple with how to oversee centralized exchanges that operate at the intersection of technology and finance.
For the industry, the message is clear: operational resilience and governance are no longer optional.
What comes next?
The Financial Supervisory Service has not yet announced any sanctions or enforcement actions related to the incident, but officials have indicated that the audit findings will inform future regulatory frameworks.
As digital asset markets mature, regulators appear increasingly determined to ensure that exchanges meet standards comparable to those applied to traditional financial institutions.
For South Korea’s crypto sector, Bithumb’s research may usher in a more disciplined and tightly regulated era, where rapid innovation must coexist with strong safeguards.
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