South Korea watchdog says tougher crypto rules needed after $40b giveaway

South Korea's financial market watchdog said on Monday local exchange Bithumb's unintentional giveaway of more than $40 billion in bitcoin to customers raises the need for tougher regulations to address the vulnerabilities of cryptocurrencies.

The cryptocurrency exchange said on Saturday it had accidentally given away the bitcoin to customers as promotional rewards, triggering a sharp selloff on the exchange.

Lee Chan-jin, governor of the Financial Supervisory Service, told a press conference that there was a need for improved regulatory mechanisms to address such risks, adding that authorities will seriously consider the problems revealed by the incident as they seek to bring digital assets under regulatory control with legislation.

"It is a case that shows the structural problems of information systems for virtual assets. There are many areas we are seriously looking into, and we are particularly worried about the issue of information systems," Lee said.

Of the total 620,000 bitcoin given away by Bithumb on Friday, 99.7% were retrieved by the exchange, according to initial investigation results by financial authorities. Of the 1,786 bitcoin already sold before the exchange suspended transactions, 93% were retrieved.

On media reports that Bithumb gave away more bitcoin than it actually held, Lee said the issue of "ghost coins" would have to be resolved first for cryptocurrencies to become legacy financial assets.

Those who already sold the accidentally given bitcoin are legally obligated to return them to the exchange, Lee added.

On the government's policy plan to introduce spot bitcoin exchange-traded products, Lee said he would express cautious views that stability needed to be ensured for it to be regarded as a legacy financial asset.