Bank of Korea introduces safeguards against extreme crypto market volatility

South Korea is urging cryptocurrency exchanges to implement automatic trading curbs and stricter security measures after failures in internal controls exposed vulnerabilities capable of triggering sharp market disruptions. The Bank of Korea (BOK) warned that existing systems fall short of traditional financial standards.

Key takeaways:

• The Bank of Korea called on crypto exchanges to implement safeguards against sharp fluctuations to curb extreme volatility.
• The central bank stated that crypto companies lack control mechanisms compared to traditional financial sector standards.
• The report calls for real-time systems to verify balances and prevent errors in payment processing.

Exchange failure exposes weaknesses in control systems

The Bank of Korea (BOK), in its annual payments and settlements report dated April 13, stated that cryptocurrency exchanges must introduce “circuit breaker” mechanisms following a major operational failure at Bithumb. This move signals an effort to align digital asset trading infrastructure with the protective mechanisms used in traditional financial markets. The recommendation reflects growing concern over structural weaknesses in crypto markets after an error in Bitcoin distribution caused sharp price swings and investor losses.

The report states:

“The main cause was the absence of internal control systems designed to prevent such operational risks… Compared to traditional financial institutions, the crypto asset industry has weaker internal control systems and lower regulatory standards.”

These findings highlight how operational errors — rather than fundamental market factors — can trigger extreme volatility in a crypto environment lacking multi-layered safeguards.

Bank of Korea pushes safeguards after Bithumb incident

The push for safeguards follows an incident in February involving Bithumb, one of South Korea’s largest exchanges. The platform intended to distribute Bitcoin rewards worth about 620,000 Korean won (approximately $419), but mistakenly issued 620,000 BTC. A transfer worth around 60 trillion won bypassed approval and monitoring systems. No oversight checks or automatic threshold limits were triggered, exposing a critical failure in transaction governance.

Recipients quickly liquidated their assets, triggering a sudden market crash and cascading liquidations. Stop-loss orders amplified the decline, while delayed detection allowed “ghost coins” to circulate for about 35 minutes before trading was halted. The exchange’s fraud detection system failed, further intensifying market disruption. This chain of events demonstrated how internal failures can rapidly escalate into system-wide stress through algorithmic trading reactions.

In response, the Bank of Korea recommended implementing trading halt mechanisms similar to those used by the Korea Exchange, which pause trading during extreme price swings or abnormal order volumes. It also called for real-time ledger verification systems to ensure internal balances match blockchain records and to prevent distribution errors. Such controls would allow immediate detection of discrepancies and limit the execution of invalid transactions.

Additionally, the central bank strongly recommended mandatory multi-layer approval for large transactions to eliminate the risk of execution by a single employee. This includes dual-authorization structures and system-enforced limits tied to exchange reserves, bringing crypto platforms closer to bank-grade operational standards.

The report emphasizes:

“There is a need for IT systems that can automatically and in real time verify that internal ledgers match blockchain balances and prevent erroneous payments caused by human error.”

See also: "Crypto fraud record: over 181,000 victims and $11 billion in losses in 2025"

#Bank #South Korea #Crypto Market

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