Major US crypto wallet provider and exchange service Coinbase has revealed its plans to enter the Japanese crypto market, Cointelegraph Japan reported Monday, June 4. Coinbase intends to apply for a license with the country’s financial regulator, the Financial Services Agency (FSA), “within the year,” a process that has been mandatory for all crypto exchanges operating within the country since the amendment of Japan’s Payment Services Act in April 2017. The US company is said to be working together with Mitsubishi UFJ Financial Group (MUFG) on its expansion to the Japanese market. According to CT Japan, MUFG has invested over 1 bln yen in Coinbase since 2004 through Mitsubishi UFJ Bank and Mitsubishi UFJ Capital, among others. CT Japan further reports that Coinbase’s Japanese trading service will focus on supporting major digital currencies such as Bitcoin (BTC) and Ethereum (ETH). As Cointelegraph previously reported, Coinbase already has over 20 mln customers and has to date traded $150 bln in digital assets on its exchange platform. In 2017, it reported $1 bln in revenue, according to figures from Recode, and reportedly valued itself at around $8 bln in an acquisition deal this spring. The exchange has recently launched a series of new products aimed at attracting major institutional clients - notably including a custody solution established in partnership with an SEC-compliant third-party actor. Japan’s crypto market continues to show booming crypto adoption levels, with CT Japan citing recent figures from Japan’s Virtual Currency Exchange Association that estimate the number of Japanese crypto investors at 3.5 million. This makes it an attractive market for foreign capital, notwithstanding the country’s increasingly stringent crypto regulatory climate. Earlier this week, Japanese crypto exchange BitTrade was acquired for $50 mln by a Singaporean entrepreneur, who became the first foreign investor to hold a 100 percent stake in an FSA-licensed trading platform. Coinbase, for its part, has focused on working closely with regulators to improve its security and compliance standards, with recent reports emerging that the company is attempting to obtain a federal banking charter for its US operations.<doc-sep>On June 4, Coinbase — one of the largest wallets and cryptocurrency exchanges in the US — revealed its plans to enter the Japanese crypto market. While Japan is renowned for its rather progressive views toward crypto (it was one of the first countries to officially recognize Bitcoin, after all), entering arguably the world’s hottest crypto market is no easy task. At the very least, Coinbase will have to please the Japanese Financial Services Agency (FSA) — the country’s major watchdog that has been noticeably nervous ever since January’s infamous Coincheck hack. “A regulated, compliant crypto company” Currently, the San Francisco-based Coinbase Inc. operates in 32 countries. Now that the company is expanding to Japan, Nao Kitazawa, a former investment banker at Morgan Stanley, will be named CEO of the new branch, according to Bloomberg. In a blog post announcing the Japanese branch, Coinbase referred to itself as “a regulated, compliant crypto company in the US” that “will focus on building that same level trust [sic] with new customers in Japan.” Indeed, Coinbase has been obedient with US regulatory bodies. For instance, in January 2017, the company obtained a BitLicense to operate legally in New York, and notified approximately 13,000 of its customers that it was turning their information over to the IRS in February. However, Coinbase has also been critical of US regulation. In March, the company voiced its concerns regarding the patchy state of regulation in the US and how it is “chilling” the market. Thus, Coinbase has now assured that they will cooperate with Japanese watchdogs as well: “As in other markets, we plan to take a deliberate approach to our roll out in Japan, which means working hand-in-hand with the Japanese FSA to ensure compliance with local laws at every stage”. Japanese market and the FSA pressure Japan is arguably the world’s largest market for cryptocurrencies. According to Japan's FSA, the country’s major regulatory body gathered data from 17 local cryptocurrency exchanges and found that as of the end of March 2018, there were at least 3.5 million crypto traders. Various trusted Bitcoin market data providers, such as CryptoCompare, show that the Japanese’ Yen accounts for about 55% of global Bitcoin trades at the time of reporting, and local reports show that 14 percent оf country’s young male workforce has invested in cryptocurrencies. Bitcoin and altcoins can be used as a legally-accepted means of payment in Japan, although they are not considered “legal tender,” contrary to what many media outlets, including Reuters, have previously reported. This status of cryptocurrencies has been confirmed by the FSA. Therefore, since the amendment of Japan’s Payment Services Act in April 2017, all crypto exchanges in the country are required to register with the FSA. Currently, the licensing scheme has seen a total of 16 operators cleared to serve the Japanese market, including major players such as SBI Group, while Coinbase intends to apply for a license “within the year.” The FSA seems to have a tight grip on local exchanges, firmly reacting to security breaches after two high-profile Japanese crypto exchange scandals: January’s unprecedented $532 mln Coincheck hack and the infamous collapse of Tokyo-based Mt. Gox. For example, in March, the watchdog sent “punishment notices” to seven crypto exchanges and temporarily froze the activities of two more after a round of inspections. Business improvement orders were sent for a lack of “the proper and required internal control systems,” with Coincheck being specifically cited as missing a framework for preventing money laundering and the financing of terrorism. Shortly after the news, two local exchanges, namely Mr. Exchange and Tokyo GateWay, decided to close up shop over regulatory compliance. The FSA conducts on-site inspections of exchanges that have their registration pending and have asked all crypto exchanges to submit a risk management system report in the wake of the Coincheck hack. As a result of the FSA’s thorough supervision, Binance, one of the world’s largest crypto exchanges that had opened an office in Japan, turned to Malta after the Japanese regulator had issued a warning. On May 6, the FSA rolled out further regulatory stipulations for domestic crypto exchanges, reportedly intensifying its efforts to prevent another major hack. Exchanges will be required to monitor customer accounts multiple times per day for suspicious fluctuations and must comply with stricter Anti-Money-Laundering (AML) measures, which demand Know-Your -Customer (KYC) checks, such as ID verification. Notably, these measures also confirm previous reports that government-registered exchanges will face tight restrictions – effectively a ban – on the trading of anonymity-oriented altcoins, such as Dash (DASH) and Monero (XMR), in the near future. In response to regulatory pressures, a self-regulatory body has emerged, comprised of the local exchanges. It’s called the Japan Cryptocurrency Exchange Association (JCEA), and, as Cointelegraph previously reported, the idea behind this body is to set the standards and expectations of the exchanges which are not currently registered and up to scratch with the FSA. Indeed, Taizen Okuyama, president of Money Partners Co., who has assumed the post of chairman, said the goal of the JCEA is to dispel customers’ anxieties and achieve the sound development of the market “We are preparing self-regulation rules from now on, we want to aim for further development of the industry and generalization of the virtual currency, dispeling anxiety of customers that came about from the case of Choincheck, restoring confidence.” Foreign players move in Japan’s Payment Services Act allows foreign operators to register in the country as “virtual currency exchange service providers” under certain conditions. Thus, such a company would need to “consult with the Local Finance Bureau nearest their main office established in Japan,” which would supervise the application process. The local crypto industry has not been largely explored by international parties, although recently the situation has started to change. On May 30, the first foreign player entered the Japanese crypto exchanges market, when local exchange BitTrade was bought for S$67 mln ($50 mln) by Singaporean multi-millionaire and entrepreneur Eric Cheng. As a result of the deal, he took a 100% stake in BitTrade Co., Ltd. Commenting on it, he expressed his opinion on the local market and the FSA regulations: "The cryptocurrency industry is growing exponentially. Against this backdrop, the key to capturing the rising demand is having a well-regulated and licensed outfit. With this Japanese FSA-licensed platform, I will work closely with the regulators to scale this platform globally." While Coinbase plans to establish their operation in Japan “within the year,” the Japanese arm of the internet giant Yahoo! will reportedly open their own exchange “in April 2019 or later,” albeit through buying 40% of BitARG Exchange Tokyo instead of creating a new outlet. A number of foreign players have chosen to leave the Japanese market because of the regulations. Thus, in addition to the aforementioned Binance, the San-Francisco-based Kraken has announced that it will cease serving residents of Japan by mid-June. The decision to quit reportedly involved "careful consideration of revenue against the costs and resources required to maintain service". Competition gets tough As mentioned above, there are 16 registered crypto exchanges in Japan. Coincheck, formerly the largest cryptocurrency exchange in the country, allegedly generated around $150 million in quarterly profit (the company reportedly earned $490 million from April 2017 through January 2018). However, after the heist and change of ownership (the company has been bought by Monex Group Inc.), the future doesn’t seem very bright for the exchange, as Monex CEO Oki Matsumoto told Bloomberg: “Given that we expect tougher regulatory and internal measures going forward, naturally the profitability will change.” The title of being the largest player is likely to be taken by Japan`s financial services giant SBI Holdings. The company plans to launch its bank-backed crypto exchange this summer, supporting Bitcoin (BTC), Ethereum (ETH), Ripple (XRP), and Bitcoin Cash (BCH). On June 4, SBI Holdings announced that its in-house crypto exchange has gone live. Called ‘VCTRADE,’ the service became accessible for about 20,000 users who had pre-registered with the platform in October 2017, with plans to open ordinary account applications in July 2018. XRP is the only supported coin at the moment. When announcing their broader plan, SBI Holding’s president Yoshitaka Kitao suggested that BCH would be regarded as the settlement currency, since the scarcity of BTC makes it expensive and “tiring as a settlement currency.” He added that XRP would be a remittance currency. Kitao wasn’t shy to state that the exchange “will be number one in the blink of an eye.” "When we do it, it will be number one in the blink of an eye so quickly [sic], so even if a tremendous number of customers come, we can build a system that can bear [sic]. We have to pursue safety thoroughly.” Coinbase’s Japanese trading service will focus on supporting major digital currencies such as Bitcoin (BTC) and Ethereum (ETH), as CT Japan reported. Indeed, the service does not currently support XRP — an important altcoin for the country, with 24-hour trading volume of approximately ¥57,608,447,391 ($524 mln) — while, conversely, the altcoin seems to be their competitor’s primary interest, at the moment.<doc-sep>
Coinbase Inc., the operator of the largest U.S. cryptocurrency exchange, is setting up shop in Japan, where much of the world’s bitcoin trading takes place. The San Francisco-based company named Nao Kitazawa, a former Morgan Stanley banker turned fintech executive, as its new Japan CEO. Coinbase said it is working with Japanese regulators to ensure it complies with local laws. It didn’t offer a time frame for when it expects to commence operations. Coinbase, which was founded in 2012 and runs the largest U.S. digital-currency exchange by volume, said it currently operates in 32 countries including Singapore. Yet it has lacked a significant presence in Asia, one of the driving forces behind bitcoin’s surge last year. Related Video The WSJ's Steven Russolillo travels the world (sort of) to see how regulators are responding to the remarkable rise of cryptocurrencies. Video: Sharon Shi and Crystal Tai “As a regulated, compliant crypto company in the U.S., we will focus on building that same level [of] trust with new customers in Japan,” Dan Romero, vice president and general manager of Coinbase, wrote on the company’s blog. He said the expansion was part of Coinbase’s efforts “to accelerate the global adoption of cryptocurrency.” Japan has long been a hotbed for cryptocurrency trading. Rules that took effect in Japan last year established bitcoin as a legitimate payment method and helped the digital currency flourish in the country. About two-thirds of bitcoin trading is yen-denominated, according to data provider Coinhills. But Japanese regulators have tightened their grip on the market in recent months, after cryptocurrency exchange Coincheck Inc. in January lost more than $500 million in customer funds. Regulators have since suspended operations at some exchanges. Exchange operators have had mixed success in Japan. In April, San Francisco-based cryptocurrency exchange Kraken said it was ending its trading services for Japanese residents. Also in April, internet brokerage Monex Group Inc. said it was buying Coincheck for $34 million and aimed to fully restore its operations. Messaging-app operator Line Corp. is one of several companies waiting on regulatory approval to open a cryptocurrency exchange. Coinbase operates a popular app that people use for storing, trading and transferring bitcoin and collects fees when customers buy or sell the cryptocurrency. At one point in December, Coinbase was the most-downloaded free app in Apple Inc.’s App Store. The company has been trying to branch out beyond its core base of U.S. individual investors, and last month unveiled plans for new services aimed at hedge funds and other big investors, such as brokering large-scale cryptocurrency trades. The price of bitcoin recently traded at around $7,400, according to research site CoinDesk. It has lost more than half its value since peaking near $20,000 in December. Still, it is significantly higher from early 2017, when it started the year below $1,000. Write to Steven Russolillo at steven.russolillo@wsj.com