Bithumb Excluded from Financial Authorities' CEO Meeting Amid Rising Regulatory Scrutiny and Competitive Pressures

Bithumb, one of South Korea’s prominent cryptocurrency exchanges, has found itself at the center of industry and regulatory discussions after being notably excluded from a high-profile Digital Asset Exchange CEO meeting convened by South Korea's financial authorities. The decision comes amidst growing concerns regarding its crypto lending services and compliance practices, as well as increasing competition following the strategic alliance between Upbit and Naver. This development raises critical questions about Bithumb’s ability to sustain its position in a rapidly evolving market.

Bithumb Omitted from Financial Supervisory Service CEO Meeting

Industry insiders reported on the 1st that Bithumb was absent from a meeting organized the previous day at 2 p.m. by the Financial Supervisory Service (FSS), chaired by Governor Lee Chan-jin. Prominent exchanges, including Upbit, Coinone, Korbit, and Gopax, alongside the vice chairman of the Digital Asset Exchange Association (DAXA), attended the meeting, which focused on discussing the current regulatory landscape and promoting responsible market practices.

Although Bithumb was initially expected to participate, it was reportedly excluded from the final list of attendees just a day before the event. During the meeting, Governor Lee highlighted the need for greater user-centric accountability among exchange leaders. He noted, “Excessive promotions and the introduction of high-risk products for short-term profit must not erode trust,” a statement widely interpreted as a critique of recent actions by Bithumb.

Mounting Regulatory Pressure: Crypto Lending and Compliance Issues

Bithumb's ongoing challenges stem largely from its controversial "Lending Plus" service, introduced in July. This offering enabled users to borrow up to four times the value of their collateral, encompassing both fiat currency and digital assets. However, South Korea's regulatory authorities raised concerns over the risks associated with such lending schemes. On September 19, financial regulators instructed major exchanges, including Bithumb, to suspend all crypto-lending platforms until clear regulatory guidelines could be established.

Initially resisting the directive, Bithumb continued operations until September 25, when it came under increased pressure from DAXA. In response, the exchange reduced the maximum borrowing cap for Lending Plus from 200% of collateral value to 85%, indicating its somewhat reluctant compliance with regulatory demands.

Further complicating matters, Bithumb faced scrutiny regarding its order book sharing practices with Australia-based exchange Stellar. While such arrangements are typically designed to enhance market liquidity, South Korea’s stringent anti-money laundering requirements under the Special Financial Information Act demand rigorous compliance and timely submission of related documents to the Financial Intelligence Unit (FIU). Despite these obligations, Bithumb’s September 22 announcement of its USDT market with shared order books triggered regulatory investigation. The following day, Bithumb CEO Lee Jae-won was summoned for questioning by financial authorities to evaluate potential violations.

The Naver-Upbit Alliance: Escalating Market Competition

As Bithumb contends with regulatory concerns, its competitive position is further undermined by the recent alliance between Naver Financial and Upbit’s parent company, Dunamu. This partnership, formalized on September 25 through Naver acquiring a significant stake in Dunamu, positions Upbit strategically to expand its presence in the cryptocurrency market.

The collaboration combines Naver’s robust ecosystem of users and its comprehensive payment and remittance services with Upbit’s market-leading cryptocurrency trading platform. This synergy strengthens Upbit's capacity to integrate digital assets into real-world applications, enhancing user adoption and providing additional revenue streams. For Bithumb, which remains heavily reliant on trading fees as its primary source of income, this development poses a substantial challenge, threatening to further erode its already shrinking market share.

Bithumb’s Counterstrategy: IPO and Diversification Plans

Despite mounting regulatory scrutiny and escalating competition, Bithumb is pressing forward with its long-term growth strategy, headlined by plans to go public. The company is targeting an initial public offering (IPO) on the KOSDAQ exchange by April 2024. To solidify its business foundation, Bithumb has embarked on a restructuring initiative, which includes spinning off its blockchain business and investment divisions.

According to a Bithumb spokesperson, “Our goal is to establish a more diversified revenue structure by launching new blockchain-based businesses and expanding our investment portfolio through this spinoff. The IPO will not only enhance financial transparency but also reinforce public trust in our operational and compliance capabilities.”

Navigating Regulatory Challenges and a Dynamic Market

As Bithumb faces intense scrutiny and operational hurdles, the exchange must demonstrate resilience and adaptability to sustain its role as a major player in South Korea's cryptocurrency ecosystem. With its IPO timeline set and diversification efforts underway, the firm’s success primarily depends on its ability to satisfy regulatory expectations and differentiate itself in an increasingly crowded and competitive market.

Bithumb’s path forward will demand strategic agility and consistently transparent operations to regain the trust of regulators, investors, and users alike. With both regulatory authorities and rival exchanges raising the bar, Bithumb's response in the coming months could define its long-term relevance in the industry.