What happened in Korea on Feb 7 with Bitcoin?
Bitcoin briefly plunged to $55,000 after a dramatic operational error at Bithumb, one of South Korea’s largest cryptocurrency exchanges. The incident triggered panic selling on the platform and sent shockwaves across the local crypto market, raising fresh concerns around exchange-level risks and internal controls.
The exchange sent 2000 Bitcoins per user. Yeah! you heard it right, 2000 Bitcoins per user due to an error!
What Actually Happened?
Bithumb had planned a routine promotional campaign, intending to distribute 2,000 Korean won (roughly $1.40) as a small cash reward to selected users. However, due to a critical mistake in execution, affected users instead received at least 2,000 bitcoins each.
In total, over 620,000 BTC worth more than $40 billion at prevailing prices were erroneously credited to 695 users.
Within 35 minutes, Bithumb:
- Detected the error
- Restricted trading and withdrawals for affected accounts
- Initiated recovery procedures
According to the exchange, 99.7% of the distributed bitcoins were successfully recovered.
Immediate Market Impact
The mistake caused a sharp and sudden selloff on Bithumb:
- Bitcoin prices on the exchange dropped nearly 17%
- Prices fell to 81.1 million won, equivalent to roughly $55,000
- Panic selling intensified as users rushed to exit positions amid confusion
Although prices later recovered to around 104.5 million won, the damage was already done volatility spiked, liquidity thinned, and market confidence took a visible hit.
No Hack But Still a Serious Red Flag
Bithumb clarified that:
- The incident was not due to hacking
- There was no security breach
- Customer assets and system security remained intact
Despite this, South Korea’s financial regulators took a firm stance. Authorities stated that the episode highlighted structural vulnerabilities and operational risks in virtual asset platforms.
Regulatory Fallout Begins
Following an emergency review, regulators announced that:
- On-site inspections may be conducted at Bithumb
- Other crypto exchanges could also be examined
- Internal control systems, asset custody practices, and operational workflows will face scrutiny
This incident may accelerate tighter oversight of South Korea’s crypto exchanges, especially those handling large retail volumes.
Why This Matters Beyond Bithumb
Even though the issue was quickly contained, it underscores a deeper market truth:
Crypto crashes don’t always start with hacks or macro events, sometimes they begin with human error.
Key takeaways:
- Exchange-specific events can trigger localized flash crashes
- Liquidity concentration amplifies the impact of operational mistakes
- Trust in centralized exchanges remains fragile
Bithumb already trails Upbit, the dominant exchange in South Korea, and incidents like this only widen that credibility gap.
Final Thoughts
Bitcoin’s drop to $55,000 wasn’t driven by fundamentals, macroeconomics, or on-chain stress, it was driven by a single operational failure at a major exchange. While the market stabilized quickly, the episode serves as a reminder that in crypto, infrastructure risk is price risk.
As regulators tighten oversight and traders grow more cautious, exchanges will be under increasing pressure to prove that their systems and their people can handle the scale of modern crypto markets.
Frequently Asked Questions (FAQ)
What caused Bitcoin to fall to $55,000?
Bitcoin fell to $55,000 after Bithumb mistakenly distributed around 2,000 BTC per affected user instead of a small cash reward. The error triggered panic selling on the exchange, leading to a sharp, short-term price crash.
Is Bithumb hacked?
No. Bithumb confirmed that the incident was not caused by hacking or any external security breach. It was an internal operational error during a promotional reward distribution.
How many users were affected by the Bitcoin distribution error?
A total of 695 users were affected by the erroneous Bitcoin distribution.
How much Bitcoin was accidentally distributed?
Approximately 620,000 BTC—worth over $40 billion at the time—was mistakenly credited to user accounts.
Did users manage to withdraw the free Bitcoin?
Most users were unable to withdraw the Bitcoin. Bithumb restricted trading and withdrawals within 35 minutes of detecting the error and recovered about 99.7% of the distributed funds.
Why did the price crash happen only on Bithumb?
The crash was primarily localized to Bithumb because the panic selling occurred on that exchange. Other global exchanges did not experience the same level of price impact.
Did Bitcoin recover after the crash?
Yes. Bitcoin prices recovered shortly after the incident once trading stabilized and the error was contained.
What action did regulators take after the incident?
South Korean financial regulators announced potential on-site inspections of Bithumb and other exchanges to review internal controls, asset management practices, and operational systems.
Does this incident pose a long-term risk to Bitcoin?
No. The incident was exchange-specific and not related to Bitcoin’s underlying network or fundamentals. However, it highlights ongoing risks associated with centralized exchanges.
What can traders learn from this event?
Traders are reminded that operational failures at exchanges can cause sudden volatility. Diversifying across exchanges and using self-custody solutions can help reduce exposure to such risks.
Read also:
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