Business / Financial Markets

Cryptocurrency groups squabble over merger as shadow of regulation looms

JIJI

Merger talks between two Japanese cryptocurrency groups have made little headway as they joust for command of the new entity, industry sources say.

This may delay the creation of rules to govern the emerging industry at a time when hacking attacks on Coincheck Inc. and other cryptocurrency exchanges are raising calls for some kind of regulation.

The two groups are the Japan Blockchain Association, which is led by bitFlyer Inc., the nation’s largest digital currency exchange operator, and the Japan Cryptocurrency Business Association, which has more members.

Under the revised law on payment services, the Financial Services Agency can authorize a self-regulating body to set industry rules, conduct investigations on members, and impose punishment.

The two groups started the merger negotiations with an eye to being designated as the regulatory body.

After a break, they resumed talks in early January and are now rushing to reach an agreement in the wake of the ¥58 billion theft from Coincheck on Jan. 26, which revealed the Tokyo-based exchange’s poor security.

But the two groups are divided over how to share the top posts after merging and which should entity should survive, sources said.

To break the deadlock, some participants have proposed the idea of jointly setting up a new group, with an eye to cutting a deal by the end of March, the sources said.

The FSA hopes the cryptocurrency industry will regulate itself because making a law to do that could “nip off the buds of growth,” an FSA executive said.

“It’s now or never for the industry to show unity,” the executive said, unhappy with the slow progress.

Given the Mt. Gox and Coincheck debacles, the FSA has ordered all cryptocurrency exchanges in Japan to submit to internal inspections based on a checklist of 43 items, including their business management systems.

The items include details of systems for managing customer assets and measures to counter cyberattacks, sources said Friday.

Subject to the checks are 16 exchanges registered with the FSA and 15 others undergoing screening for registration, excluding Coincheck.