Cryptocurrency regulator says easing of restrictions in Japan must wait

Japan needs more convincing of the merits of making cryptocurrency investing easier for its population, according to the country’s top regulator.

While Financial Services Agency (FSA) Commissioner Junichi Nakajima has said he’s open-minded about the potential benefits that assets such as bitcoin possess as a quick and cheap way to send cash, in Japan they are currently 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 decentralized finance, known as “DeFi,” he said.

“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 U.S., where investors now have a multitude of ways to invest in the burgeoning asset class, Japan remains heavily restricted by comparison. The 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 crypto-assets, including the registration requirement for exchanges in 2017. The country tightened up following a massive coin theft at Tokyo-based exchange Coincheck Inc. in 2018, which revealed lax internal controls and customer protection.

While Nakajima said the current regulatory framework on cryptocurrency exchanges has been effective in terms of 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 U.S., Securities and Exchange Commission Chair Gary Gensler said regulating cryptocurrency 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 cryptocurrencies, such as peer-to-peer lending on DeFi platforms.

A recent crackdown in China on exchanges, miners and traders left some players shifting into lesser-known tokens and decentralized storage technologies.

Nakajima, a career bureaucrat and engineering major from the University of Tokyo, said that unlike stocks, cryptocurrencies do not have underlying assets and are therefore subject to big price swings. That’s one of the reasons the regulator does not allow crypto-investment trusts, which are considered an easy way for the public to gain exposure to the asset class.