Lawmakers set to crack down on crypto after Bithumb’s $40bn Bitcoin blunder

Bithumb’s erroneous $40 billion Bitcoin giveaway will become a watershed moment for South Korea’s crypto exchanges, say experts.

The industry is bracing for an imminent restructuring at the hands of lawmakers, South Korean newspaper Joongang Ilbo reported. The new regulations will be strict and mirror those used in the traditional financial sector, unnamed lawmakers and industry officials said.

“The incident has spread the belief that the crypto market should be viewed not simply as an investment platform, but as an integral part of South Korea’s financial infrastructure,” an unnamed industry insider told the newspaper.

The blunder, which made headlines around the world on February 6, was ill-timed for both Bithumb and other domestic crypto exchanges.

Bithumb is hoping to go public in the US this year, becoming the first South Korean exchange to do so. The incident also came weeks after a $36 million hack at Upbit, Bithumb’s closest domestic rival.

Taskforce to act

The ruling Democratic Party’s Digital Asset Taskforce, a crypto policymaking body, will speak to advisory committee members ahead of a meeting on February 24, anonymous sources told Joongang Ilbo.

Regulators have taken a dim view of the gaffe, which saw a Bithumb official mistakenly issue Bitcoin to 249 customers who took part in a lucky draw event.

The official had intended to send a total of around $423 in Korean won to the customers, but accidentally selected Bitcoin as the unit type.

Bithumb has since recovered most of the lost Bitcoin, but the Financial Supervisory Service recently extended its formal investigation into Bithumb until the end of February.

Lawmakers will likely bundle their new regulations for exchanges into a package of bills that will also include stablecoin issuance rules.

The taskforce’s chair Lee Jung-moon said he and the government are preparing separate proposals, which will both be assessed before the end of the month

The Democratic Party has taken a more business-friendly approach to crypto policy, but regulators want tougher measures.

Liability regulations

Regulators say crypto exchanges should be held liable for computer-related faults as part of new liability rules.

They also think that exchange operators should hold more financial assets in reserve to help them pay the costs of hacks or giveaway mistakes.

Other financial institution-level IT control regulations favoured by the FSS include the use of multi-signature transfers and the introduction of cooling-off periods for large transfers.

In banking, multi-signature transfers require multiple authorised parties to sign off on a transaction before it is processed. This helps boost security by ensuring the transaction has no single point of failure.

Financial institutions use cooling-off periods as temporary windows that allow customers to cancel financial actions, such as loans or credit agreements, without suffering a penalty. Governments often mandate these to safeguard against impulse buying.

The Bithumb incident may force the Democratic Party’s hand. Its policy committee chair Han Jeong-ae has expressed her intention to expedite legislation.

Han said she supports regulators’ call to restructure exchanges to ensure they reach the “same level” as financial companies.

“New legislation should focus on more stringent licensing, improving internal control systems, and substantially strengthening the supervisory role of the financial authorities,” Lee Jeong-su, a professor at Seoul National University’s Law School, told Joongang Ilbo.

Tim Alper is a News Correspondent at DL News. Got a tip? Email him at tdalper@dlnews.com.