The Bithumb exchange mistakenly gave away $40 billion worth of bitcoins. It crashed the price for a while

South Korean cryptocurrency exchange Bithumb - the country's second largest by trading volume - mistakenly awarded users 620,000 bitcoins as part of its promotion: that's about $40 billion, although the prize pool was originally only $425. Attempts by the "winners" to quickly sell the bitcoins they received caused the price of the cryptocurrency to plummet and attracted the attention of financial regulators.

The error occurred during a promotion in which users were supposed to receive 2,000 won (about $1.4) each, The Wall Street Journal reported. The exchange planned to give away 620,000 won, but an error by an exchange employee paid out 620,000 bitcoins - such a volume of the cryptocurrency was worth about $40 billion. This happened on Friday, February 6.

As a result of this action, 695 customers suddenly received at least 2,000 bitcoins each into their accounts - that's more than $120 million, Reuters wrote. Some of the customers tried to sell or withdraw the funds, causing the bitcoin price on Bithumb to instantly collapse 15-17% to 81 million won, the channel reported.

Bithumb suspended trading and withdrawals and said the incident was not related to a hacker attack or security issues. The exchange got back 99.7 percent of the misallocated assets as a result of transaction cancellations and voluntary refunds, cited Reuters data on Feb. 7. It also offered loss coverage and other compensation to those investors who sold their bitcoins to limit losses, the WSJ reported. In addition, the company temporarily zeroed trading commissions this week on all asset classes and announced a permanent $70 million "Client Protection Fund," the newspaper added.

South Korea's Financial Supervisory Service called the incident evidence of "fundamental flaws" in cryptocurrency exchanges' internal control systems, Bloomberg reports. Authorities held emergency meetings and began inspections of Bithumb, which could lead to possible fines or other sanctions, the Wall Street Journal notes. Regulators also said they are preparing new legal requirements that will oblige crypto exchanges to implement internal control systems comparable to traditional financial institutions, Bloomberg reports.

For Korea's second-largest stock exchange to have such a flawed IT system is unbelievable, said Seoul University law professor Lee Jong-soo in a commentary for The Wall Street Journal.

"The incident has shown that in addition to a simple input error, there are structural flaws in the internal control systems of cryptocurrency exchanges, it should not be taken lightly," said ruling Democratic Party spokesman Jim Ji-ho.

This article was AI-translated and verified by a human editor