The Bank of Korea is advocating for the implementation of stock-market-style circuit breakers on the country’s cryptocurrency exchanges. This proposal aims to align the trading of cryptocurrencies with the same halting rules that are currently in place for the Korea Exchange. The recommendation was highlighted in the central bank’s annual Payment and Settlement Systems Report, published on April 13.
The proposed rules suggest automatic trading halts when there are significant price swings or when unusual orders are detected in the order book. The central bank believes that these regulations should be included in the forthcoming Digital Asset Basic Act. The impetus for this policy recommendation stems from an incident that occurred at Bithumb in February, where an employee mistakenly entered a reward unit as “BTC” instead of “KRW.” This error led to the distribution of approximately 60 trillion won, equivalent to about $43 billion, in phantom bitcoin before the mistake was identified and corrected by supervisors 20 minutes later.
As a result of this incident, panic selling ensued, causing a 17% drop in BTC on Bithumb, while the token continued to trade at its market price on other exchanges. Currently, Upbit, Bithumb, and three other licensed exchanges in Korea utilize high-speed matching engines equipped with price collars and fat-finger checks to mitigate such issues. Additionally, the CME Group employs a similar mechanism for bitcoin futures, pausing trading for two minutes if prices fluctuate by 10% within a 60-minute timeframe.
However, the challenge remains whether these halts would be effective given the global nature of BTC trading. For instance, if Upbit were to pause trading for 20 minutes, bitcoin would still be actively traded on platforms like Binance and Coinbase, leading to potential discrepancies in pricing when Upbit resumes trading. Circuit breakers serve as a familiar mechanism in traditional finance, signaling that markets are being stabilized. Nevertheless, the decentralized and multi-platform nature of cryptocurrency trading complicates the regulatory efforts aimed at addressing price volatility.
