Key Insights:
- Bithumb system flaws triggered a $40B Bitcoin transfer error during a promotional event.
- 17% Bitcoin price drop followed panic selling and forced liquidations on Bithumb.
- Regulators demand asset returns as oversight gaps face parliamentary scrutiny.
Bithumb has reported that system flaws led to a $40 billion error after an internal failure allowed the accidental transfer of 620,000 Bitcoin during a promotional event. The South Korean crypto exchange disclosed that serious weaknesses in its internal controls left its system vulnerable and unable to stop the mistaken transfer in real time.
The country’s second-largest virtual asset exchange stated it intended to distribute 620,000 won, worth about $426. Instead, it credited customers with 620,000 Bitcoin. The mistaken transfer exceeded Bithumb’s actual holdings by a wide margin, causing market disruption.
Chief Executive Officer Lee Jae-won told a parliamentary committee that the transfer equaled 15 times the exchange’s 42,000 Bitcoin reserves. He attributed the failure to a 24-hour processing delay that prevented balances from updating in real time.
Lee acknowledged that the crypto exchange lacked a system capable of blocking the transfer immediately. He also admitted that internal controls failed to match outgoing transfers against actual holdings.
Bithumb System Flaws and $40 Billion Error Lead to Regulatory Scrutiny
The Financial Supervisory Service confirmed that most of the Bitcoin has been retrieved. However, 1,786 Bitcoins were sold within minutes before Bithumb froze affected accounts.
Regulators said customers who sold the Bitcoin must return them. In addition, the authorities noted that some users transferred proceeds to personal bank accounts, while others exchanged the assets for different tokens.
Lee said the crypto exchange had internally reversed 99.7% of the erroneous ledger entries. The exchange is now engaging about 80 customers who withdrew funds and is asking them to voluntarily return the equivalent in Korean won.
Following the updates, members of parliament voiced concern over oversight failures in the South Korean virtual asset market. Lawmakers said stronger interconnected systems are necessary to ensure that ledger balances match actual holdings in real time.
Financial Supervisory Service Governor Lee Chan-jin said he believes the virtual currency market should be subject to the same oversight as banks. However, he stated that current laws do not allow that level of regulation.
Bithumb stated that the incident did not involve hacking or an external security breach. The exchange said the failure originated from internal ledger management processes.
The company also confirmed that it stores asset data in internal ledgers rather than directly on-chain. Unlike blockchain confirmations, those ledgers function similarly to spreadsheets and update with delays.
Bitcoin Price Drop and Liquidations Follow Bithumb Error
The mistaken transfer led to a 17% decline in Bitcoin prices on Bithumb’s platform. In the 35 minutes before the exchange froze accounts, 86 users sold approximately 1,788 Bitcoin.
The sudden selling pressure caused a temporary price disruption on the platform. Lee described “panic selling” as one of the primary areas of damage. In addition to this sentiment, more than 30 users who pledged Bitcoin as collateral were forced to liquidate. Automated margin calls were activated during the price decline.
Lee disclosed that the exchange is reviewing both panic selling and liquidation losses as potential targets for relief from damages. However, the company has not outlined specific compensation terms.
The crypto exchange concluded by issuing a public apology, noting that it will redesign its asset payment process. The company pledged to strengthen internal control systems to prevent a recurrence.
Source: https://www.thecoinrepublic.com/2026/02/11/bithumb-says-system-flaws-led-to-40-billion-error-in-south-korea-crypto-exchange-incident/
