South Korean financial authorities have opened an emergency inquiry into crypto exchange Bithumb, following a system malfunction that distributed 2,000 bitcoins to users during a promotional event.
Bithumb made an input error during a “Random Box” promotion, leading to the accidental transfer of large amounts of Bitcoin instead of the advertised 2,000 won, Cryptopolitan reported yesterday. The mistaken asset rewards caused an abnormal BTC price fall in the exchange’s order books.
South Korea’s Financial Supervisory Service (FSS) has launched an on-site inspection to determine how the failure occurred and whether the exchange violated financial regulations. The authorities will also look at how much of the digital assets can be recovered.
Bithumb in regulators’ crosshairs after 2,000 bitcoin giveaway blunder
According to a news update from local outlet Chosun Business, the FSS convened an emergency response meeting on the morning of January 7, chaired by Governor Lee Chan-jin. The supervisory group then dispatched officers to Bithumb’s offices to collect incident reports.
Chosun, citing sources familiar with the investigations, confirmed the Financial Services Commission is also conducting its own parallel review. FSC vice chairman Kwon Dae-young will reportedly chair a meeting on an unspecified date, where Bithumb CEO Lee Jae-won is slated to attend.
Bithumb’s promotional event was designed to distribute small prizes ranging from 2,000 won to 50,000 won for each participant. However, because of a unit entry error, participants received a minimum of 2,000 Bitcoins apiece.
The Asia Business Daily’s analysis found that around 700 users bought the Random Boxes, with about 240 opening them to claim rewards. Most of those who opened the boxes reportedly received 2,000 bitcoins credited directly to personal wallets.
Since bitcoin was trading in the upper 98 million won range at the time, each recipient could have received about 196 billion won. The aggregate value of the mistaken distribution is estimated at 60 trillion won, the largest accidental crypto disbursement recorded in the country.
About 3 billion won, or $2.1 million, was reportedly withdrawn by users who liquidated assets they had obtained through the error. Several individuals are said to have realized profits of hundreds of millions of won by selling when market prices reached 102 million won per coin.
Heavy selling pressure from recipients caused a sharp but brief price dislocation on Bithumb’s order books. At 7:30 PM local time Thursday, bitcoin on the crypto trading platform plunged to 81.11 million won, or $55,000, well below prices seen in global exchanges.
Bithumb recognized the abnormal activity 8 minutes later and suspended deposits and withdrawals around 7:40 PM. In an apology issued early the next morning, the company said:
“An abnormal quantity of Bitcoin was granted to some customers. We sincerely apologize for the inconvenience caused to our customers. The market price returned to normal levels within five minutes, and the domino liquidation prevention system functioned properly, so there was no chain liquidation caused by the abnormal Bitcoin price.”
Scrutiny from competition watchdog piles on Bithumb
South Korea’s competition authority, the Korea Fair Trade Commission, has also put Bithumb under investigation. Chosun Biz reported KFTC raided the company’s office last week over its promotion practices.
A researcher from the commission visited Bithumb’s headquarters in Gangnam-gu, Seoul, to collect documents of its marketing campaigns. According to one source, the commission intends to use the details to investigate whether claims made in advertising were objective and lawful.
The commission is also looking at whether Bithumb coercively induced customer participation by providing 100,000 won in support money for new customers who used its API to participate. The company allegedly altered its terms for payout since the level of customer participation in the event jumped.
Source: https://www.cryptopolitan.com/korean-emergency-probe-bithumb-bitcoin-error/
