$44B bitcoin blunder puts South Korea regulators on alert over local crypto exchanges

Days after a local exchange mistakenly distributed billions of dollars worth of bitcoin to users, South Korea’s top financial watchdog is taking up oversight of crypto markets.

Sunday, the Financial Supervisory Service said it will launch planned investigations into “high-risk” practices that undermine market order such as large-scale price manipulation by so-called whales, trading schemes tied to suspended deposits and withdrawals or coordinated pump tactics fueled by social media misinformation.

In addition to text-analysis systems that use artificial intelligence to detect potential market abuse, the watchdog also said it plans to develop tools which automatically extract suspicious trading patterns by the second and minute.

This comes after a widely reported exchange error last week that some Bithumb users, one of the country’s largest exchangers, were mistaken for at least 2,000 bitcoin each when it was used to make small promotional rewards — blunder estimated at around $44 billion at the time.

During this period, BTC prices dropped 30% from the global average and some recipients tried to sell the assets. The exchange had limited trading and withdrawals for the 695 affected customers within 35 minutes of the erroneous distribution on Friday.

In response, regulators said the incident exposed “vulnerabilities and risks” of virtual assets that they could conduct on-site inspections of exchanges if irregularities are detected in internal control systems.

But beyond the use of market manipulation, the FSS said it will impose punitive fines on IT incidents across the financial sector and increase security accountability of chief executives and chief information safety officers — a shift that could have direct implications for crypto trading platforms.

Similarly, the agency confirmed that it has created a preparatory team for the Basic Digital Asset Act, which would extend Korea’s regulatory framework beyond the first phase of crypto rules.

A wider push by President Lee Jae-myung to stamp out what he has described as ‘cruel financial practices’ is also being discussed in the crackdown plan, which includes measures to strengthen enforcement against fraud and expand tools to combat voice phishing.

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