South Korea's Financial Supervisory Service (FSS) has launched an exhaustive investigation into cryptocurrency exchange Bithumb following a massive internal ledger error that created 620,000 non-existent Bitcoin (BTC), valued at approximately $42.8 billion. The incident, described by regulators as a serious threat to market order and operational transparency, occurred when an employee mistakenly entered the unit "BTC" instead of the local currency "won" during a promotional event, artificially inflating user account balances.
The technical error triggered immediate market chaos on Bithumb's platform. As users discovered their inflated balances, social media circulated screenshots showing unexpected credits, leading to rapid sell orders. The sudden influx of sell pressure—representing thousands of coins entering the market within minutes—overwhelmed Bithumb's order books, causing liquidity to vanish and market makers to withdraw.
The resulting flash crash saw Bitcoin's price on Bithumb's BTC/KRW trading pair briefly plummet to near ₩81 million, creating a severe local discount compared to global prices while international exchanges remained unaffected. This price collapse revealed the fragility of exchange liquidity when faced with sudden supply shocks.
More critically, the incident exposed a dangerous discrepancy between Bithumb's internal accounting and its actual blockchain reserves. According to CryptoQuant analysts, Bithumb held only 41,798-41,843 BTC in verified on-chain reserves at the time of the error—a negligible amount compared to the 620,000 "ghost Bitcoin" credited to user accounts. This mismatch has revived industry fears about "paper Bitcoin," where assets exist only on centralized exchange ledgers without corresponding blockchain backing.
The exchange claims to have recovered most of the erroneously credited funds, but approximately 125 BTC withdrawn by opportunistic users remain unsettled. The FSS investigation has identified the incident as stemming from a "single point of failure," where a single staff member had unchecked power to issue digital assets. Korean lawmakers have labeled the failure as structural rather than technical, suggesting deeper flaws in accounting and settlement systems that may require regulatory intervention.
The episode has already triggered a capital outflow of $268 million from Bithumb due to lost confidence and raises fundamental questions about whether exchange reserves are sufficient to back customer operations. The outcome of the ongoing investigation will likely determine whether South Korea tightens custody and internal control standards for digital asset platforms to prevent future systemic collapses.
