Bithumb Exchange Faces Regulatory Scrutiny as South Korea Clamps Down on Crypto Lending

South Korea's Financial Services Commission (FSC) has ordered cryptocurrency exchanges to suspend new lending product launches, citing heightened risks to users and market stability. This action follows a spike in leveraged trading, with Bithumb reporting over 27,000 customers using lending services in June—13% of whom experienced liquidations due to volatile collateral values.

The regulatory move aligns with Galaxy Digital's recent warnings about increasing leverage in crypto markets. While existing loans will be permitted to mature, the FSC has banned new lending services until formal regulations are implemented. Exchanges failing to comply may face on-site inspections and enforcement measures.

Global Crypto Leverage has returned to bull-market levels, with Galaxy noting a 27% quarterly rise in crypto-collateralized loans to $53.1 billion. A recent $1 billion liquidation event—triggered by Bitcoin's drop from $124,000 to $118,000—highlighted the vulnerability of overleveraged positions. Systemic risks are emerging across DeFi liquidity pools, Ethereum staking queues, and widening on-chain derivatives spreads.