South Korea Launches Full Probe Into Bithumb After $43B Bitcoin Error

South Korea expands Bithumb inspection into a full probe after a $43B Bitcoin error, raising concerns over reserves, controls, and market trust.

South Korea’s financial watchdog has launched a full investigation into crypto exchange Bithumb after a massive Bitcoin transfer error. The incident involved about $43 billion in Bitcoin sent to the wrong users last week. As a result, regulators acted swiftly, indicating that there was great concern for market stability.

Regulators Escalate Bithumb Inspection After Major Bitcoin Mishap

According to Yonhap, the Financial Supervisory Service switched a routine inspection to a high intensity probe. The decision came after immediate concerns regarding internal controls and asset management practices. Therefore, the scope for inspection expanded beyond just the initial scope of compliance checking.

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The financial authorities warned Bithumb ahead of time and the formal inspection was started on the 10th of February. The review was upgraded within days of findings on site, which raised more red flags. As a result, the number of inspection staff had to be increased to manage the expanded investigation.

Officials said the matter is being dealt with with the utmost seriousness. They emphasized strict action against any behavior that undermined order in the markets. As a result, enforcement measures can follow based on final findings.

The watchdog is also taking a look at the wider market impact of the incident. Authorities may reconsider the manner in which virtual asset exchanges store and manage user funds. Therefore, the results of inspections may affect future regulatory standards.

Investigators are taking a hard look at the discrepancy between the amount of Bitcoin paid and the amount of actual reserves. The transfer scale was much higher than the scale of Bithumb’s reported holdings. As such, reserve accuracy became an important inspection goal.

As of the third quarter last year, the total number of Bitcoin held in Bithumb was around 42000. Of that amount, only 175 Bitcoin were owned by the company itself. The rest were customer-entrusted assets.

Current estimation of Bithumb’s Bitcoin reserves rose to approximately 46000. Despite this, payment of 620000 Bitcoin units was flagged by the authorities. This number is equivalent to about 13 to 14 times reported holdings.

Inspection May Shape Future Virtual Asset Rules

Violations of the Virtual Asset User Protection Act are under review by regulators. The legislation obliges exchanges to possess equivalent assets entrusted by the users. Therefore, discrepancies could mean breaches of compliance.

Another official said the case could dent trust across the exchange market. Authorities will look at whether all the paid assets can be withdrawn at the same time. As a result, liquidity stress testing forms part of the probe.

Bithumb’s internal control framework is also being reviewed. Investigators want to find system gaps that allow for large transfers by only a single operator action. As a result, approval and authorization processes are scrutinized.

Monitoring systems for ledger balances against actual reserves are being tried. Regulators want to be sure these protections worked properly. Therefore, system failures can then lead to corrective mandates.

The financial authorities believe inspection results will have an impact on pending legislation. Findings can help inform discussions on the second phase of virtual asset laws. As a result the case has regulatory significance beyond Bithumb.

Yonhap reported officials will conclude the probe once full verification of data is complete. Penalties or changes in operations may follow based upon findings. As a result, Bithumb is under more regulatory pressure.

Overall, the investigation highlights South Korea’s strong approach towards crypto oversight. Asset protection and transparency are key policy priorities. As a result, exchanges may be required to have better controls in the future.