South Korean law enforcement has suffered its second major crypto custody loss in 2026, with police losing 22 Bitcoins worth 2.1 billion won (around $1.5 million) from seized criminal assets.
News of the latest loss broke today, although the specific details about which department lost the funds and the exact circumstances surrounding the disappearance remain under investigation.
Concerns are now growing about the institutional readiness to secure the digital assets that the authorities are confiscating.
South Korean police lost 22 BTC from seized assets in February
Less than a month after the reports emerged about the prosecutors’ office BTC loss, the Gangnam Police Station revealed on February 13, 2026, that it had lost 22 Bitcoin tokens worth around 2.1 billion won ($1.5 million) from assets seized in criminal investigations.
Although the amount is smaller than the earlier loss, the police incident carries added weight since it is the second major custody failure in such a short period.
Apparently, the police loss was discovered during a nationwide audit of law enforcement cryptocurrency holdings (triggered by the prosecutors’ earlier loss), although the exact timing of when the Bitcoin actually disappeared remains under investigation.
The funds, stored in a USB wallet as well, were surrendered to Gangnam investigators in November 2021 as part of a criminal investigation that was later suspended. As such, the wallet sat unmonitored for years while the investigation went dormant.
When auditors finally checked the wallet during the nationwide inspection, they discovered the USB remained exactly where it was kept, but the 22 BTC that was supposed to be inside was completely wiped out.
The lack of transparency around basic details like when exactly the funds disappeared and which custody method was being used is a similar concern shared with the prosecutors’ incident as well.
Even in the prosecutors’ case, officials had declined to confirm the exact amount lost at first and only acknowledged the scale after media pressure.
Prosecutors lost $48 million just weeks earlier
Today’s loss came barely a month after an even larger disaster at the Gwangju District Prosecutors’ Office. On January 28, 320 BTC, valued at approximately $48 million (70 billion won at the time), was reported missing.
The prosecutors launched an internal audit targeting five inspectors tasked with managing the seized assets, with the possibility of criminal charges if any suspicious activity is discovered.
According to various sources, the Bitcoin in question was confiscated from a woman who went by the title “A” who was indicted alongside her father for running an online Bitcoin gambling site between 2018 and the time of seizure.
Apparently, the 320 BTC seized was part of approximately 1,800 BTC that A smuggled into South Korea and hid domestically. The remaining amount was allegedly stolen by another unidentified individual who accessed A’s blockchain account before the authorities could get to it.
USB storage and verification failures are common factors in both incidents
Both the prosecutor and police incidents share common concerns that point more towards systemic institutional failure than isolated events. In both cases, authorities relied on USB hardware wallets, but while these wallets are generally considered secure for individual users, they still require technical knowledge to protect the keys they hold.
Analysts noted several custody failures that could apply to both incidents. First, if the authorities simply confiscated the USB devices without transferring the Bitcoin to separate government-controlled wallets, the original owners could withdraw their assets using backup private keys stored elsewhere (suggesting that the seizure was incomplete from the start).
Secondly, if custody wallets were created on internet-connected computers, then the private keys could have been exposed from the moment of generation.
Finally, storing wallet passwords or private keys on the same USB devices or in easily accessible locations creates vulnerabilities. If employees access these credentials consistently, each verification creates an opportunity for phishing attacks and credential exposure.
Professional custody firms use multi-signature wallets requiring multiple independent approvals for any transaction, hardware security modules that cannot be easily compromised, and protocols that separate verification from access.
Nonetheless, two incidents this close to each other expose a dangerous pattern: South Korean authorities have been seizing increasing amounts of cryptocurrency since the courts recognized digital assets as properties subject to forfeiture, but the institutions responsible for custody seem to lack the technical infrastructure, expertise, and protocols to properly secure and manage these assets.
Source: https://www.cryptopolitan.com/south-korea-police-lose-btc/
