South Korean authorities have launched a formal investigation into Bithumb, one of the country’s largest cryptocurrency exchanges, following a staggering operational error that briefly credited users with approximately 620,000 Bitcoin, valued at $40–44 billion at the time of the incident.
The event, which occurred on February 6, 2026, is now being scrutinized by regulators for what officials describe as serious structural vulnerabilities in Bithumb’s internal controls, oversight mechanisms, and risk management processes. While the exchange has emphasized that no customer funds were ultimately lost and no external attack occurred, the scale of the error has raised alarms across South Korea’s financial and regulatory ecosystem.
Originally reported by crypto-focused outlets and later amplified across social media, the incident has become one of the most striking examples to date of how centralized exchanges rely heavily on internal accounting systems, rather than on-chain settlement, to manage user balances.
How A Simple Promotion Triggered A $40 Billion Error
The error stemmed from a promotional campaign known as “Random Box,” a routine marketing event run by Bithumb to reward user engagement.
Under normal conditions, participants in the promotion receive small cash rewards denominated in Korean won (KRW). Most winners were meant to receive around 2,000 KRW, roughly $1.37–$1.50, while higher reward tiers offered amounts up to approximately 50,000 KRW.
However, during the configuration of the promotion, a staff member reportedly entered “BTC” instead of “KRW” as the reward unit. That single input mistake caused the system to credit rewards in Bitcoin rather than fiat currency.
As a result, between 249 and 695 users, reports vary by source, were suddenly credited with massive Bitcoin balances, often around 2,000 BTC per account. In total, the error amounted to roughly 620,000 BTC appearing across user accounts on Bithumb’s internal ledger.
These balances were not the result of on-chain Bitcoin transfers from Bithumb’s cold or hot wallets. Instead, they existed as phantom or “paper” Bitcoin, created entirely within the exchange’s centralized accounting system.
Flash Crash Exposes Centralized Exchange Fragility
The consequences were immediate.
Some users, realizing the magnitude of the unexpected credits, quickly sold the Bitcoin through Bithumb’s BTC/KRW trading pair. The sudden influx of sell orders triggered a sharp flash crash, with Bitcoin prices on Bithumb briefly plunging to around $55,000, or lower in some reports.
Crucially, this price collapse was isolated to Bithumb. Global Bitcoin markets remained stable, highlighting how price discovery on centralized exchanges can temporarily diverge from broader market conditions when internal systems malfunction.
Bithumb detected the anomaly within minutes, estimates range from 5 to 20 minutes, and responded by freezing affected accounts, halting withdrawals, and restricting trading access for users involved in the incident.
According to the exchange, no external wallets received Bitcoin and no on-chain reserves were compromised. The company repeatedly emphasized that the incident was not a hack, security breach, or cyberattack, but a purely internal operational failure.
Recovery Effort And Corporate Backstop
Following the account freezes, Bithumb initiated an aggressive recovery process. The exchange ultimately recovered 99.7% of the erroneously credited Bitcoin, a figure confirmed by multiple disclosures.
Of the BTC that had already been sold by users during the brief window before controls were activated, the majority was recouped through internal reconciliation and market operations. Any remaining shortfall was covered using Bithumb’s corporate reserves, ensuring that no legitimate customer balances were affected.
The exchange stated that all impacted users were contacted and that corrective actions were taken swiftly to stabilize the platform. Trading normalized shortly after the incident, and the BTC/KRW price realigned with global markets.
While the financial damage was contained, regulators have made clear that containment alone is not sufficient. The investigation now focuses on whether Bithumb’s internal systems should ever have allowed such a discrepancy to occur at scale in the first place.
Regulators Flag Structural Vulnerabilities
South Korean authorities are now examining Bithumb’s internal controls, approval workflows, and operational safeguards. Early commentary from regulators points to systemic weaknesses, rather than a one-off human mistake.
Officials are reportedly concerned that a single configuration error could generate balances equivalent to hundreds of thousands of Bitcoin, even if those balances were not backed by on-chain assets. The case has intensified scrutiny around how centralized exchanges manage internal ledgers, promotions, and user balances with limited real-time regulatory oversight.
The investigation also comes amid broader regulatory efforts in South Korea to tighten supervision of crypto exchanges, particularly following past collapses and misconduct in the digital asset sector.
Industry observers note that while Bithumb acted quickly, the incident underscores how centralized exchanges function more like unregulated financial institutions than decentralized blockchain systems, despite often marketing themselves as crypto-native platforms.
Paper Bitcoin And The Bigger Implications
Beyond the immediate investigation, the Bithumb incident has reignited debate around “paper Bitcoin”, the idea that much of Bitcoin trading on centralized exchanges occurs without corresponding on-chain settlement.
As one commentator noted, the event offers further evidence that a significant portion of Bitcoin trading activity takes place entirely within centralized software environments, detached from the Bitcoin blockchain itself and operating with limited transparency or collateralization
Bithumb paper bitcoin scandal gets investigated
South Korea has launched investigations into @BithumbOfficial following a massive operational blunder on February 6, 2026, where the exchange accidentally airdropped approximately 620,000 BTC (valued at around $40–44 billion at the…
— MartyParty (@martypartymusic) February 9, 2026
In this case, hundreds of thousands of Bitcoin appeared, moved markets, and were partially sold, all without originating from real on-chain balances. While the system ultimately corrected itself, critics argue that the episode highlights fundamental risks in centralized crypto trading models.
Some believe the scale and visibility of the Bithumb error could act as a regulatory wake-up call, accelerating efforts to impose stricter rules around internal accounting, proof-of-reserves, and collateral requirements for centralized exchanges.
Whether that leads to meaningful reform remains to be seen. What is clear is that the incident has exposed uncomfortable truths about how much trust users place in opaque systems, and how quickly that trust can be tested by a single line of incorrect input.
For now, Bithumb faces regulatory scrutiny, reputational damage, and renewed questions about the future of centralized crypto trading in a market that increasingly demands transparency, accountability, and real on-chain settlement.
Disclosure: This is not trading or investment advice. Always do your research before buying any cryptocurrency or investing in any services.
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