Still on Upbit and Bithumb: South Korea’s Crypto Giants Face Regulatory Heat Over High-Leverage Lending

South Korea’s crypto market, one of the most vibrant in the world, is under intense scrutiny as financial regulators turn their attention to Upbit and Bithumb, the country’s two largest cryptocurrency exchanges. On July 25, 2025, the Financial Services Commission (FSC) and Financial Supervisory Service (FSS) issued stern warnings about the exchanges’ high-leverage crypto lending and margin trading services, citing potential violations of the Lending Business Act and inadequate investor protections. With plans to form a joint task force to craft self-regulatory guidelines, regulators are signaling a crackdown on risky crypto products. Here’s what’s happening, why it’s significant, and what it means for South Korea’s crypto ecosystem.

The Rise of High-Leverage Crypto Products

Upbit and Bithumb, which together dominate South Korea’s crypto trading volume, launched their crypto lending services on July 4, 2025, offering users the chance to borrow against their digital assets or cash for leveraged trading. Bithumb’s service allows borrowing up to four times a user’s collateral across ten cryptocurrencies, including Bitcoin, Ethereum, and Tether, enabling short-selling strategies in a volatile market. Upbit, meanwhile, offers loans up to 80% of collateral value for three coins—Bitcoin, Tether, and Ripple—with similar high-risk features. These products promise big profits but come with equally big risks, amplifying losses in a market known for wild price swings.

The allure of leverage is undeniable. In a country where crypto trading is a cultural phenomenon, with retail investors driving massive volumes, these services cater to a hunger for high returns. But regulators see a different picture: a potential for systemic instability and widespread investor harm, especially for retail traders who may not fully grasp the dangers of 4:1 leverage—double the 2:1 cap allowed in South Korea’s stock market.

Regulatory Red Flags and Legal Ambiguity

The FSC and FSS summoned executives from South Korea’s five major exchanges, including Upbit and Bithumb, to address these concerns. Regulators highlighted two major issues: potential violations of the Lending Business Act and insufficient investor safeguards. The Lending Business Act governs consumer lending in South Korea, requiring licenses and strict oversight for loan services. Crypto-backed lending, especially with high leverage, could fall under this law, but the lack of clear crypto-specific regulations creates a gray area. Upbit’s Tether lending service, for instance, was flagged as potentially constituting consumer lending, prompting the exchange to suspend it on July 28, 2025.

Bithumb, however, has kept its 4:1 leverage intact, though it paused new loan applications after exhausting its lending inventory. Regulators worry that without robust protections—like mandatory risk disclosures or investor education—these services could lead to catastrophic losses. Ki Young Ju, founder of CryptoQuant, underscored the peril, noting that leverage above 5:1 in crypto trading drastically increases the chance of liquidation within 24 hours, likening it to “playing Russian roulette.”

A Push for Self-Regulation

In response to these risks, the FSC and FSS announced plans to form a joint task force with industry players, including DAXA, a self-regulatory body comprising Upbit, Bithumb, Coinone, Korbit, and Gopax. This task force, set to release guidelines next month, will draw on international standards, local stock market rules, and the unique dynamics of South Korea’s crypto market. Expected measures include leverage caps, stricter eligibility for high-risk products, enhanced transparency, and mandatory investor education. The goal is to balance innovation with stability, ensuring crypto exchanges can offer new services without endangering retail investors or the broader financial system.

This move reflects South Korea’s cautious approach to crypto regulation. While the country embraces blockchain technology—evidenced by bank stocks surging after stablecoin-related moves—its regulators prioritize consumer protection. The FSC’s chairman, Kim Joo-hyun, emphasized the need for voluntary self-regulation to address high-leverage risks, hinting at stricter rules if the industry fails to comply.

The Stakes for Upbit and Bithumb

Upbit and Bithumb’s dominance makes their response critical. Upbit’s swift suspension of its Tether lending service shows a willingness to adapt, but Bithumb’s slower adjustments suggest resistance to scaling back its lucrative 4:1 leverage. Both exchanges face a delicate balancing act: maintaining market share while aligning with regulatory expectations. Their actions will likely set the tone for smaller exchanges like Coinone and Korbit, which are also under scrutiny.

The regulatory pressure could also reshape market dynamics. Industry analysts warn that overly stringent rules might push risk-hungry traders to offshore platforms with weaker oversight, undermining South Korea’s efforts to protect investors and maintain market integrity. This concern is particularly acute given South Korea’s robust trading community, whose activity often influences global crypto trends.

Broader Implications for South Korea’s Crypto Market

South Korea’s crypto market is at a crossroads. The FSC and FSS’s actions signal a shift toward tighter oversight, part of a broader push to integrate crypto into the regulated financial system. The country’s second-phase crypto legislation, still in development, will likely build on these self-regulatory guidelines, potentially introducing licensing requirements for lending services and stricter leverage limits.

For retail investors, these changes could mean safer trading environments but also reduced access to high-risk, high-reward products. For exchanges, compliance costs may rise, but clear rules could attract institutional players, boosting market legitimacy. Globally, South Korea’s regulatory moves are being watched closely, as its crypto market’s size and influence make it a bellwether for other jurisdictions.

Looking Forward

The FSC and FSS’s task force is a pivotal step toward clarifying South Korea’s crypto lending landscape. By August 2025, we’ll likely see draft guidelines that could cap leverage, mandate risk disclosures, and require exchanges to vet users for high-risk products. Upbit and Bithumb’s ability to adapt will shape their future dominance, while the industry’s willingness to self-regulate could delay or soften stricter laws.

For now, the message is clear: innovation must not outpace investor safety. As South Korea navigates this regulatory tightrope, its crypto market remains a dynamic, high-stakes arena where ambition meets caution. Whether Upbit and Bithumb can pivot to meet these demands—or face further restrictions—will determine the next chapter of South Korea’s crypto story.