To avoid a recurrence of the market chaos that ensued in February when Bithumb accidentally delivered over $40 billion worth of Bitcoin to its clients, the South Korean central bank has suggested that cryptocurrency exchanges have “circuit breakers” that temporarily suspend trade.
In a payments report released on Monday, the Bank of Korea suggested that legislators think about implementing measures to halt trading in cryptocurrency in the event of unexpected price fluctuations, much as the trading limitations implemented by the Korea Exchange.
Stringent Protocols
According to the bank, the virtual asset sector is currently not well-regulated and does not have the same internal control procedures as more traditional financial institutions. Therefore, the research concluded, stronger applicable policies are required to proactively avoid such instances, as they may happen at other virtual asset exchanges.
This comes at a time when politicians in South Korea are trying to enact legislation that would further regulate cryptocurrency. The Bank of Korea has said that these regulations should include its recommendations to make virtual asset exchange activities more secure and transparent.
Rather than 620,000 Korean won, which was about $400, Bithumb mistakenly transferred 620,000 Bitcoin, which was valued around $42 billion at the time, to clients in early February. According to the bank’s assessment, the price of Bitcoin on Bithumb dropped as consumers hurried to sell, which in turn caused others to panic-sell, further lowering its price.
Within minutes, Bithumb stopped trading and reversed their Bitcoin transfers. However, the exchange clarified that 1,788 BTC, or almost $125 million, had already been sold before it could take any action, and it made up the difference using corporate reserves.
Crypto exchanges should be obligated to have systems that can identify and prevent human error-induced incorrect payments, according to the Bank of Korea. It went on to say that exchanges should also be able to detect and report differences between a platform’s internal assets and those on the blockchain.
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