South Korea's Central Bank Proposes Trading Halts for Crypto Following Bithumb Error
In February, Bithumb mistakenly transferred 620,000 Bitcoin to users rather than 620,000 Korean won. South Korea's central bank is now urging legislators to implement safeguards to prevent future occurrences.
The central bank of South Korea has stated that cryptocurrency exchanges operating in the country should implement their own "circuit breaker" systems designed to pause trading activities in order to avoid a recurrence of the market chaos that followed Bithumb's February error, when the platform mistakenly distributed over $40 billion worth of Bitcoin to its user base.
In a payments report released on Monday, the Bank of Korea indicated that legislators ought to contemplate establishing protocols comparable to the trading suspension mechanisms utilized by the Korea Exchange, which would halt trading activities when cryptocurrency valuations experience sudden and dramatic movements.
"Currently, the virtual asset industry lacks internal control mechanisms and faces lower regulatory intensity compared to established financial institutions,"
the bank said.
"Consequently, as similar incidents could occur at other virtual asset exchanges, it is necessary to strengthen relevant regulations to prevent them in advance,"
the report added.
The recommendations arrive at a time when South Korean legislators are actively working to enact legislation aimed at strengthening crypto regulation, which according to the Bank of Korea should incorporate its proposed measures "to enhance the safety and transparency of virtual asset exchange operations."
During the beginning of February, Bithumb made an error by transferring 620,000 Bitcoin (BTC) to customers, valued at approximately $42 billion at that time, when it should have sent 620,000 Korean won, which amounts to $400.
Bitcoin's value on the Bithumb platform plummeted as account holders scrambled to liquidate their holdings, triggering panic-selling among other traders and causing the price to drop even further, as documented in the central bank's report.
The exchange suspended all trading operations and successfully reversed the erroneous Bitcoin transfers within a matter of minutes, however Bithumb reported that 1,788 BTC, valued at approximately $125 million, had already been liquidated by users before the platform could intervene, with the exchange utilizing its company reserves to make up for the deficit.
The Bank of Korea has recommended that cryptocurrency exchanges operating in the country should be mandated to maintain systems with the capability to detect and stop "erroneous payments caused by human error."
The central bank further stated that exchanges should additionally be equipped with automated systems designed to cross-reference a platform's internal asset records against those recorded on the blockchain in order to identify any inconsistencies or discrepancies.