Bithumb Halts USDT Operations Following Regulatory Scrutiny in South Korea

South Korean Crypto Exchange Ends International Partnership Amid AML Concerns

In a significant development for South Korea’s cryptocurrency landscape, Bithumb, the nation’s second-largest digital asset exchange, has abruptly terminated its USDT market operations and order-book-sharing arrangement with Australia’s Stellar Exchange. The decision, which took effect Friday morning at 11:00 AM local time, comes after only two months of collaboration and affects trading pairs for ten cryptocurrencies previously available through the USDT market. This sudden closure highlights the growing tensions between cryptocurrency innovation and regulatory compliance in one of Asia’s most important digital asset markets.

Industry analysts view this development as yet another example of South Korea’s increasingly assertive regulatory approach to cryptocurrency oversight, particularly regarding cross-border partnerships and anti-money laundering protocols. The closure represents a significant setback for Bithumb’s international expansion strategy and serves as a cautionary tale for other exchanges contemplating similar arrangements in jurisdictions with stringent regulatory frameworks.

Regulatory Investigation Prompts Swift Market Closure

The Korea Financial Intelligence Unit (FIU), the country’s primary financial watchdog for monitoring suspicious transactions, initiated an extensive on-site investigation at Bithumb’s headquarters beginning October 1, 2025. This probe specifically targeted potential vulnerabilities in the exchange’s anti-money laundering safeguards that might have been created through its order-book sharing mechanism with Stellar Exchange. Investigators expressed particular concern about possible weaknesses in Know Your Customer (KYC) procedures and compliance with the Travel Rule when collaborating with overseas exchanges operating under different regulatory standards.

The Travel Rule, implemented globally as part of Financial Action Task Force (FATF) recommendations, mandates that Virtual Asset Service Providers (VASPs) collect, verify, and share identifying information about both senders and recipients in cryptocurrency transactions exceeding certain thresholds. Korean authorities worried that Bithumb’s partnership with the Australian exchange could potentially create a loophole allowing users to bypass these stringent requirements through cross-border trading activities.

“The investigation into Bithumb was unusually thorough and prolonged,” said a financial compliance expert familiar with the case who requested anonymity due to the sensitivity of the matter. “When regulators spend that much time examining operations, it typically indicates significant concerns about compliance infrastructure. The extended review undoubtedly placed immense operational pressure on the exchange.”

Brief History of the Stellar Exchange Partnership

The now-terminated partnership began with considerable fanfare on September 22, 2025, when Bithumb unveiled its USDT market beta in collaboration with Australia’s Stellar Exchange. The strategic alliance was positioned as a liquidity-enhancing measure, with both exchanges sharing order books to create deeper markets and more favorable trading conditions for users on both platforms. By pooling trading volume from both exchanges, the partnership promised to deliver enhanced market access and potentially reduce price volatility.

However, regulatory red flags emerged almost immediately. During the operational period, it came to light that staff from BingX—Stellar Exchange’s Singapore-based parent company—were physically working within Bithumb’s Seoul headquarters. This arrangement raised serious questions about proper oversight, regulatory jurisdiction, and accountability. The physical presence of foreign exchange personnel on Korean soil created a complex compliance scenario that apparently troubled regulators.

South Korea’s regulatory framework for digital assets includes the comprehensive Act on the Protection of Virtual Asset Users, which establishes rigorous requirements administered by the Financial Services Commission. These regulations cover everything from asset management practices and customer protection measures to transaction monitoring systems. Korean authorities have grown increasingly concerned that cross-border partnerships, particularly those involving foreign personnel operating within Korean jurisdiction, create ambiguities in regulatory enforcement, especially regarding anti-money laundering protocols and customer verification procedures.

Immediate Consequences for Traders and Platform Users

The immediate impact of the closure falls on Bithumb users who actively traded in the USDT market. According to the exchange’s announcement, all outstanding orders in the USDT market will be automatically canceled at the time of closure, and all API services associated with this market segment will be suspended. However, Bithumb has assured users that the ten cryptocurrencies previously traded against USDT remain available for trading in Korean Won (KRW) markets, and deposit and withdrawal functions for these assets continue uninterrupted.

In its official communication about the closure, Bithumb attempted to frame the development in positive terms, claiming the shutdown was intended to “offer a more stable and advanced trading environment through system improvements.” The exchange also indicated that updates regarding any potential reopening of the USDT market would be provided at a later date, though no specific timeline was offered.

“Bithumb’s explanation about system improvements appears to be a diplomatic way of addressing what is clearly a regulatory intervention,” explained Dr. Mina Park, a financial technology researcher at Seoul National University. “The timing and circumstances strongly suggest this was a direct response to regulatory pressure rather than a voluntary technical upgrade. When exchanges make sudden changes to their services immediately following regulatory investigations, the causality is rarely coincidental.”

Broader Implications for Global Crypto Exchange Operations

This development at Bithumb represents more than just a localized regulatory issue—it illuminates the substantial challenges cryptocurrency exchanges face when attempting to expand services internationally, especially in jurisdictions that prioritize strict oversight. South Korea has consistently positioned itself as a market that values investor protection and crime prevention over unbridled financial innovation, requiring exchanges to maintain rigorous compliance standards that often exceed those in other countries.

The abrupt end to Bithumb’s international partnership also raises questions about the viability of similar arrangements in other regions. As regulatory frameworks for digital assets continue to evolve globally, exchanges may find themselves caught between competing jurisdictional requirements, potentially limiting their ability to create cross-border trading ecosystems.

“What we’re seeing with Bithumb is likely to become a recurring pattern as regulatory regimes mature,” said James Rodriguez, director of cryptocurrency compliance at Global Financial Consultancy. “Exchanges are increasingly finding themselves having to choose between regulatory certainty in a single jurisdiction or navigating the complexities of multi-jurisdictional compliance. The days of operating in regulatory gray areas are rapidly coming to an end.”

Looking Forward: The Future of Regulated Cryptocurrency Markets

As the dust settles on Bithumb’s USDT market closure, the incident serves as an important case study in the ongoing negotiation between innovation and regulation in digital asset markets. For South Korean traders, the immediate impact may be limited to reduced stablecoin trading options, but the longer-term implications for the industry could be substantial.

The Korean government continues to refine its approach to cryptocurrency regulation, balancing consumer protection concerns with the desire to remain competitive in financial technology. Recent legislative proposals suggest authorities are working toward creating more clarity for legitimate operators while simultaneously strengthening enforcement against non-compliant activities.

For international exchanges considering partnerships with Korean platforms, the Bithumb case demonstrates the critical importance of thoroughly understanding local regulatory expectations before establishing operational relationships. As cryptocurrency markets continue to mature globally, the most successful exchanges will likely be those that proactively align with regulatory requirements rather than attempting to circumvent them.

“The lesson from Bithumb isn’t that international partnerships are impossible,” concluded a senior executive at a competing Korean exchange who requested anonymity. “Rather, it’s that such arrangements must be structured from the ground up with regulatory compliance as a foundational principle, not an afterthought. The exchanges that recognize this reality will be the ones that thrive in tomorrow’s more regulated environment.”

As cryptocurrency adoption continues to grow worldwide, the tension between innovation and regulation will remain a defining characteristic of the industry. The Bithumb case illustrates that in markets with strong regulatory frameworks, compliance considerations will ultimately dictate the parameters within which innovation can occur.