South Korean crypto exchange Bithumb said it mistakenly distributed more than $40 billion worth of Bitcoin to customers during a promotional rewards event, triggering sharp price volatility last week for bitcoin’s price.
The exchange said the incident occurred when a planned giveaway of small cash rewards was processed incorrectly. Instead of awarding about 2,000 Korean won, or roughly $1.40, some users received at least 2,000 Bitcoin each.
The error resulted in the accidental distribution of roughly 620,000 Bitcoin, valued at approximately $44 billion at current prices.
Bithumb apologized for the mistake and said it has now recovered 99.7% of the excess Bitcoin. The exchange said it restricted trading and withdrawals for 695 affected customers within 35 minutes of the erroneous payout.
“We would like to make it clear that this incident is unrelated to external hacking or security breaches,” Bithumb said in a statement. “There are no problems with system security or customer asset management.”
Despite the quick response, reports said a small number of recipients sold or traded the coins before restrictions were imposed. Bithumb told local media it had not yet recovered 125 Bitcoin, worth around $9 million, from a small group of customers.
The exchange said it would cover those remaining losses using its own corporate funds.
Bithumb’s Bitcoin disruptions
The incident caused an immediate disruption in Bitcoin trading on the platform. Charts from Bithumb showed Bitcoin briefly slumped 17% to 81.1 million won or roughly $55,000 during the selloff before recovering. The price later rebounded to around 104.5 million won.
South Korea’s financial regulators responded swiftly. The Financial Services Commission said the incident exposed vulnerabilities in the virtual asset sector. Officials said they would review internal control systems at domestic exchanges and launch on-site inspections if irregularities were found.
South Korean newspaper Kookmin Ilbo reported regulators had already begun an inspection at Bithumb’s offices on February 7. Investigators reportedly requested a list of employees authorized to issue crypto payments.
Unnamed sources quoted by the newspaper described the incident as revealing “structural vulnerabilities” in the exchanges operational processes.
Reports indicated that Bithumb’s internal system allowed employees to issue loyalty points, Korean won, Bitcoin, and Ethereum without formal settlement procedures, increasing the risk of payout errors.
Executives acknowledged internal shortcomings. In an email to employees, Exchange Business Division Vice President Hwang Seung-wook said the mistake demonstrated weaknesses in the company’s processes.
“The fact that a single error in setting an event reward unit can destabilize an entire crypto exchange demonstrates the current state of our systems,” he wrote. He said the company would focus on eliminating failures in oversight rather than blaming individuals.
Bithumb’s compensation plan
Bithumb announced compensation measures for customers affected by abnormal trading conditions during the incident.
The exchange said users who sold Bitcoin at unusually low prices during the disruption would receive the full sale amount plus an additional 10%. Bithumb also said it would waive trading fees across all markets for seven days beginning February 9.
The company said it would provide 20,000 Korean won, or about $15, to customers who were actively using the platform at the time of the incident.
The error comes at a sensitive time for the exchange. The exchange has been pursuing plans to become the first South Korean crypto exchange to go public in the United States this year.
Earlier this month, South Korea’s consumer protection watchdog launched a probe into Bithumb’s marketing claims.
For now, Bithumb is in damage control mode. The exchange has promised to compensate users who lost money from panic selling during the glitch. The company also says it will review and upgrade its internal systems to prevent future errors. Details on specific fixes have not yet been released.