This week, Bitcoin experienced a dramatic flash crash, plummeting to $55,000 on the South Korean exchange Bithumb. The sharp decline was attributed to a significant internal accounting error at the platform. Bithumb mistakenly credited users with 2,000 BTC each, instead of what was intended—a small reward of 2,000 Korean won, roughly equivalent to $1.50.
A blog post released by Bithumb detailed the incident, revealing that this error resulted in tens of millions of dollars in phantom bitcoin being reflected in the accounts of hundreds of users. Importantly, no actual bitcoin was moved on-chain; the inflated balances existed solely on Bithumb’s internal ledger.
Once users noticed the inflated balances, many rushed to capitalize on the situation by attempting to sell their purported holdings. This surge in sell orders led to a sharp sell-off in Bithumb’s Bitcoin/Korean won pair, causing the price of Bitcoin to drop by 15.8% compared to other exchanges. At one point, Bitcoin traded as low as 81 million won (around $55,000), while prices elsewhere remained stable.
In response to the abnormal transactions, Bithumb quickly activated its internal controls and restricted trading in the accounts impacted by the error. The exchange reported that prices on its platform normalized within approximately five minutes. Highlighting the effectiveness of its systems, Bithumb noted that its liquidation prevention protocol operated successfully, averting any cascading forced liquidations that could have arisen from the sudden price movement.
The company reassured users that the incident was not a result of an external hack or security breach, confirming the safety of customer assets during the ordeal. The swift handling of the situation highlights the importance of effective internal controls within cryptocurrency exchanges, especially amidst the market’s inherent volatility.
