Japan needs more convincing of the merits for making cryptocurrency investing easier for its population, according to the country's top regulator.
While Financial Services Agency Commissioner Junichi Nakajima said he's open-minded about the potential benefits that assets like Bitcoin possess as a quick and cheap way to send cash, in Japan currently, they are mainly being used for speculation and investment, not as a means of transferring money. New challenges are coming from a broader proliferation of firms involved in decentralised finance, known as DeFi, he said. Bitcoin price in India stood at Rs. 34.4 lakhs as of 1:30pm IST on August 10.
“We need to consider carefully whether it is necessary to make it easier for the general public to invest in crypto assets,” Nakajima, 58, who became chief of Japan's financial regulator last month, said in an interview.
Unlike in the US, where investors now have a multitude of ways to invest in the burgeoning asset class, Japan remains heavily restricted by comparison. Japan's FSA set up a study group of outside experts in July and is expected to consider regulatory responses to DeFi in the coming months, with investors looking to Nakajima for clues on the outlook.
Nakajima was involved in crafting Japan's first regulatory framework on cryptocurrency assets, including the registration requirement for exchanges in 2017. The country has since tightened up, following a massive coin theft at Tokyo-based exchange Coincheck in 2018, which revealed lax internal control and customer protection.
While Nakajima said the current regulatory framework on crypto exchanges has been effective in customer protection and anti-money laundering, many of the 31 registered exchanges are struggling financially, he said. Their business situation “is rather tough,” he said.
In the US, Securities and Exchange Commission Chair Gary Gensler said regulating crypto exchanges is perhaps the easiest way for the government to get a quick handle on digital token trading. But he's also concerned about new ways people are getting into crypto, such as peer-to-peer lending on DeFi platforms.
A crackdown recently in China, on exchanges, miners and traders, left some players shifting into lesser-known tokens and decentralised storage technologies.
Nakajima, a career bureaucrat and engineering major from the University of Tokyo, said unlike stocks, crypto does not have underlying assets and is therefore subject to big price swings. That's one of the reasons the Japanese regulator does not allow crypto investment trusts, which are considered an easy way for the public to gain exposure to the asset class.
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