South Korea’s financial watchdog is stepping up crypto oversight after a $44 billion Bitcoin blunder rocked local exchange Bithumb and sent regulators scrambling to restore market trust.
Quick Summary – TLDR:
- Bithumb mistakenly sent out 620,000 BTC to users, worth around $44 billion.
- South Korea’s Financial Supervisory Service (FSS) is cracking down on manipulation and weak internal controls.
- New AI-powered surveillance tools will scan for fraud, price manipulation, and social media-driven schemes.
- The incident accelerates development of the Digital Asset Basic Act and a framework for tokenized securities.
What Happened?
Last week, South Korean crypto exchange Bithumb mistakenly distributed massive amounts of bitcoin to hundreds of users, totaling around 620,000 BTC. Valued at $44 billion at the time, the error sparked chaos as some users rushed to sell, crashing Bithumb’s prices by 30% below global averages.
The company responded quickly, freezing affected accounts within 35 minutes, recovering 99.7% of the assets, and offering compensation plus 10% bonuses to users who sold during the turmoil. But for South Korean regulators, the event was a wake-up call.
🇰🇷 BITHUMB ERROR SPARKS KOREA’S CRACKDOWN ON CRYPTO
— Coin Bureau (@coinbureau) February 9, 2026
South Korea’s regulators plan to actively investigate market manipulation in crypto this year.
Officials are targeting price-manipulation tactics used by large traders and exchanges.
These include “whale pumping,” fake price… pic.twitter.com/4QGYfKySOx
Regulators Launch Full-Scale Crackdown
The Financial Supervisory Service (FSS), South Korea’s top financial regulator, announced a sweeping crypto market oversight initiative following the incident. The agenda, unveiled in its 2026 work plan, outlines aggressive measures to combat price manipulation, poor internal controls, and misinformation-fueled trading.
Key steps in the crackdown include:
- Investigations into high-risk practices, such as whale-driven price swings, pump-and-dump schemes, and manipulation of illiquid tokens.
- AI-based surveillance tools that detect irregular trading patterns down to the second.
- Text-analysis systems to flag misinformation or social media-coordinated manipulation.
- On-site inspections of crypto exchanges showing weak internal safeguards.
- Punitive fines for IT system failures across all financial institutions.
- Stricter accountability for CEOs and cybersecurity heads.
Officials pointed out that the mistaken bitcoin transfer exceeded Bithumb’s actual reserves by 10 times, highlighting how vulnerable crypto infrastructure can be without strict checks.
Digital Asset Legislation Moves Forward
In parallel, the FSS is ramping up preparation for the Digital Asset Basic Act, which will provide a more structured legal framework for crypto assets in South Korea. A dedicated task force is already working on key regulatory components, such as:
- Guidelines for token issuance disclosures.
- Support for crypto exchange listings.
- Manuals for licensing digital asset service providers and stablecoin issuers.
The legislation is expected to be finalized in Q1 2026, signaling a stronger, clearer path forward for digital asset governance in the country.
South Korea Embraces Tokenized Securities
Separately, South Korea recently passed new laws to legalize and regulate security token offerings (STOs). These updates to the Electronic Securities Act and Capital Markets Act enable qualified issuers to develop and trade blockchain-based tokenized securities.
The Financial Services Commission (FSC) voiced optimism, stating that tokenized securities will improve account management through distributed ledger technology and increase adoption of smart contract-backed systems. This development runs alongside broader crypto reforms, positioning South Korea as a regulated but forward-thinking digital asset hub.
SQ Magazine Takeaway
Honestly, this Bithumb mess could have been far worse, but it lit a much-needed fire under regulators. It’s about time crypto platforms were held to the same reliability standards as traditional finance. I think this is a turning point for South Korea, not just in punishing careless errors but in actually building a stronger digital asset ecosystem. With AI-powered tools and real legal frameworks on the way, Korea might just become a leader in responsible crypto innovation.
