Coinbase has decided to expand into the world’s hottest cryptocurrency market — Japan. It was only a matter of time before the San Francisco-based digital currency exchange — which brokers exchanges of Bitcoin, Bitcoin Cash, Ethereum, and other cryptocurrencies across 32 countries – decided to set foot into the Japanese market as it accounts for the majority of the Bitcoin trading across the globe.
Japan is the epicenter of crypto trading
The Japanese Yen accounted for 56% of Bitcoin trading in January this year, followed by the U.S. dollar at around 28%. Turn the clock back a year, and it was the Chinese Yuan that dominated Bitcoin trading in January 2017 before government regulations threw a spanner in the works.
Japan’s growing clout in Bitcoin trading has been driven by the progressive views of its government toward cryptocurrency. The country passed a law in April last year to recognize Bitcoin as a legally-accepted means of payment. Then, in September 2017, Japan’s Financial Services Agency (FSA) gave official recognition to 11 cryptocurrency exchange operators to regulate this market and eliminate cases of fraud, identity theft, and money laundering.
Not surprisingly, trading in digital currencies has taken off impressively in Japan. In March 2018, the country boasted of 3.5 million cryptocurrency traders according to data collated from 17 local exchanges. What’s more, 14% of Japan’s workforce between the ages of 25 and 30 owns cryptocurrency, according to a survey by Shin R25, which is an online magazine for young professionals.
Now, Coinbase has had minimal presence in Asia so far, so it missed a big chunk of the cryptocurrency action last year as Asian investors were the key to Bitcoin’s massive rise. As such, Coinbase’s move into this hotbed of crypto trading could give its business a nice shot in the arm. But it will have to play well with the country’s FSA that has set up tough rules for exchange operators looking to ply their trade in Japan.
Running into a strict regulator
Japan’s FSA has been setting tough rules for cryptocurrency exchanges after the Coincheck hack in January that led to a $500 million loss. The agency has been known to send punishment notices to seven crypto exchanges earlier this year as they were not meeting certain frameworks to prevent money laundering. Subsequently, two of the exchanges — HitBTH and Kraken — folded as they were finding it tough to meet the FSA’s regulations.
So, Coinbase will have to work under the eyes of a strict regulator. But the good part is that Coinbase has been a regulator-friendly exchange so far, calling itself “a regulated, compliant crypto company.” In fact, it turned over the data of 13,000 of its users to the IRS in February last year, though that happened after a legal tussle that began in 2016 when the tax agency sought information on 500,000 of Coinbase users.
Not surprisingly, Coinbase plans to work hand-in-glove with the Japanese FSA to ensure that it complies with local laws at every level. This should help it roll-out its operations smoothly, though the company hasn’t offered a timeline just yet. The company has simply stated that it is opening a new office in Japan that will be headed by former Morgan Stanley investment banker Nao Kitazawa.
However, it is going to take at least a year for Coinbase to obtain a license before it can start offering its services to the Japanese customers. But before that, it will have to keep satisfying the FSA at every step because the latter is extremely particular about maintaining transparency and security in Japan’s crypto space.