South Korea’s financial watchdog has opened a formal investigation into Bithumb, after the country’s second-largest crypto exchange mistakenly credited users with hundreds of thousands of Bitcoin it did not actually possess.
The probe, launched by the Financial Supervisory Service (FSS), follows a disclosure by Bithumb that a system error during a promotional campaign resulted in roughly 620,000 Bitcoin being reflected in customer accounts. At prevailing prices, the amount was valued at about $42.8 billion, far exceeding the exchange’s real reserves.
How the error happened
According to reporting by Yonhap News, the incident occurred during a marketing event intended to credit users with a small cash-equivalent reward of 2,000 South Korean won, or about $1.40. Instead, the reward was mistakenly entered as 2,000 Bitcoin per user after an employee selected the wrong currency unit.
Bithumb acknowledged the mistake publicly, stating that the credits were not backed by onchain Bitcoin and existed only within the exchange’s internal ledger. The platform said it had reversed most of the erroneous balances, though approximately 125 Bitcoin, worth around $8.6 million, remains unsettled.
This report is based on the provided source; independent confirmation was not available in the provided material.
Regulatory response and alleged violations
The FSS has described the incident as a serious breach with potential market-wide implications. An official quoted by local media said the regulator would pursue “stern legal actions” if violations of market order or investor protection rules are confirmed.
Regulators are reportedly examining discrepancies between the Bitcoin Bithumb actually held in its wallets and the amounts briefly shown in user accounts. The watchdog has also flagged weaknesses in internal controls, noting that the error stemmed from a single point of failure, with one staff member able to authorize the incorrect crediting.
‘Paper Bitcoin’ debate resurfaces
The episode has renewed scrutiny of so-called “paper Bitcoin,” a term used to describe Bitcoin exposure that exists only on internal exchange ledgers or in offchain financial products rather than on the blockchain itself.
Maartunn, an analyst at CryptoQuant, told Cointelegraph that the 620,000 Bitcoin credited during the incident were never real assets. He noted that Bithumb’s actual reserves are around 41,798 Bitcoin, a fraction of the amount briefly reflected in customer balances.
Onchain data shows that about 3,875 Bitcoin, valued near $268 million at the time, was withdrawn from the exchange around the incident window. While some of those withdrawals may be linked to users exploiting the error, analysts say the outflows could also signal broader confidence concerns among customers.
Why it matters now
The investigation lands at a sensitive moment for centralized exchanges, which face growing regulatory scrutiny over custody practices and transparency. It also feeds into wider market anxiety, with Bitcoin down roughly 43% from its October 2025 peak, according to figures cited in the provided material.
For regulators, the case highlights operational risks that can arise even without direct hacking or theft. For users, it underscores the importance of understanding how exchange balances are recorded and whether assets are fully backed onchain.
What to watch next
The FSS is expected to determine whether Bithumb violated platform operation or investor protection rules, and whether penalties or corrective measures will follow. Market participants will also be watching for any regulatory guidance aimed at preventing similar internal ledger errors across South Korea’s crypto industry.
Bithumb and the FSS did not respond to requests for comment at the time of publication, according to the provided source.
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