Measured Caution Can’t Temper Crypto Mania in Japan

When, not if, the cryptocurrency bull market returns, chances are that a long-awaited Bitcoin ETF launch will be the event to set it off. Multiple regulators around the world are determining how best to approach an exchange-traded fund settled in Bitcoin itself, but rumors abound that Japan’s Financial Services Agency (FSA) might be the first to put a plan to action instead of the US Securities and Exchange Commission (SEC). However, the FSA responded promptly to these leaks, and denied that it would pursue a Bitcoin ETF or that it had any interest in it at all.

This quick rejection might seem surprising given that Japan was the first to go “all in” on cryptocurrencies in many ways, and it also might seem unimportant given that Japan is just one country. However, these opinions only amount to speculation from those who have paid surface-level attention to trends rather than digging deeper. Japan’s perspective on cryptocurrency has been measured, thoughtful, and prominent since day one, but details of the nation’s carefully cultivated blockchain ecosystem are obscured by online periodicals intent on spewing bullish news. If anything, Japan is more vigilant of its burgeoning crypto sector than the US, and its unique willingness to address blockchain ideas head-on is perhaps the most bullish case yet.

Restraint Breeds New Business

Many believed that the introduction of an FSA-approved cryptocurrency ETF was a foregone conclusion, but Japan is far more interested in building a solid foundation for its budding exchange industry—and this is confirmed by FSA representatives. In a country that already hosts a significant number of cryptocurrency exchanges, it was indicated that creating new derivatives may hasten mainstream access to cryptocurrencies and was unnecessary (for now). 

This restraint is warranted, and fully expected from Japanese regulators which have made it their mission to allow cryptocurrency to grow as naturally as possible, within carefully defined constraints. The approach has meant taking the opposite tack of other major world powers and is exemplified by Japan’s labeling of cryptocurrencies as a ‘form of payment’—technically legal tender but not an official currency. 

While countries like the US have oversight bodies that deliberate endlessly on how to classify tokens and take half-measures such as mandating AML and KYC compliance, China put its boot on the industry’s neck by banning ICOs and shuttering exchanges. Japan, on the other hand, is miles ahead of the regulatory race and isn’t afraid to get creative. Relevantly, it was also the first country to fully regulate its exchanges and induct them into the economy.

It’s not the FSA that regulates exchanges, interestingly enough, but the Japanese Virtual Currency Exchange Association (JVCEA) which is a new expert entity given the power to help exchanges “self-regulate”. After the announcement that Japan would allow its new exchange regulator to determine the healthiest way to govern domestic exchanges, hundreds of potential businesses lined up to launch under the new rules. These businesses now bring a large portion of the sector’s funding into the Japanese crypto ecosystem and foster new technologies that keep it at the cutting edge.

Japan keenly understands new ideas require a novel approach that doesn’t try to fit a square peg into a round hole. By putting exchanges under the purview of the JVCEA and establishing a tailored, inclusive regulatory template for exchanges and ICOs, its burgeoning crypto sector grows of its own accord without compromising the greater economy. With this perspective, it’s easy to see that another rejection of a Bitcoin ETF doesn’t mean it won’t happen. Crypto authorities like those in Japan simply want to scrutinize the idea and perform their due diligence, but when and how an official stamp of approval is granted will be a bullish signal for any country interested in adopting a sustainable cryptocurrency model.

A Thriving Crypto Culture

While the delicate balance that Japan has struck is carefully expanded in new directions, the country’s retail investors and blockchain enthusiasts push the technology’s boundaries and celebrate it as if they live in a veritable crypto utopia—and why wouldn’t they? Stores around the country accept Bitcoin in exchange for goods and services, Bitcoin bonds can be purchased by large banks such as Fisco, and some of the world’s most impressive blockchain events take place right in its backyard.

The largest blockchain conference in Asia—not just Japan—is scheduled for January 30th, 2019 in Yokohama. Held by the Global Blockchain Association, the Japan Blockchain Conference is only 30 minutes away from one of the world’s biggest crypto innovation hubs, Tokyo. Accordingly, thousands of enthusiasts will descend upon the port city to listen as Tim Draper, John McAfee, Alex Lightman, and other influential names outline the sector’s future.

It’s only appropriate that blockchain’s biggest bash yet takes place in Japan, where an 8-person girl group called the “The Virtual Currency Girls” travel around dressed in coin-themed masks (which represent various cryptocurrencies) to teach young people and the public about blockchain. It’s even less surprising given that after the US dollar, Bitcoin trades denominated in Japanese Yen represent the second highest volume in the world, but any number of trends seen in the country justify its place as an epicenter of cryptocurrency innovation.

Japan’s Quick Pivot Logical With Context

With images swimming in one’s head of neon-lit buildings, costumed anime monsters wandering the streets, and Bitcoin ATMs on every corner, it’s easy to think that Japan was always like this. However, Japan is still recovering from its “Lost Decade” after the severe devaluation of the Yen. In this context it makes perfect sense why the nation is so optimistic yet simultaneously obsessed with control over cryptocurrency: it represents a somewhat risky chance to get ahead on the world economic stage.

So far, Japan’s thoughtfully constructed experiment is working, but it isn’t without obstacles. Too much enthusiasm, especially for potentially impactful assets like a Bitcoin ETF, may jeopardize its momentum. Past hacks of Japanese exchanges such as Mt. Gox and Zaif demonstrate the price to be paid, and so the JVCEA rarely stays its hand when noncompliance is discovered. However, the fact that Japan is intent on maintaining its well-rounded perspective and impressive inertia signals to markets that crypto will continue to thrive, even if in a different form relative to its current manifestation.