North America’s largest cryptocurrency exchange Coinbase recently announced that the opening of an office in Japan. Nao Kitazawa, a veteran of Japan’s financial services industry, will lead operations for the cryptocurrency exchange in Japan.
Why Japan Is Attractive To Coinbase
The choice of Japan for Coinbase, which already operates in 32 countries (including one in Asia) internationally, is not surprising.
The Japanese parliament legalized cryptocurrencies as a medium of daily transactions under the Virtual Currency Act last year. Japan is also among the top three countries in daily trading volumes for cryptocurrencies. (The others are United States and South Korea).
Various reasons have been put forward for the popularity of cryptocurrency trading in Japan. Stagflation in the country’s economy, which has resulted in a paucity of high return investment avenues, is one. Deutsche Bank came out with a report in December last year that blamed bitcoin’s rising prices on Mrs. Watanabe, a Japanese housewife diversifying into high return crypto trades to cover margins for her foreign exchange trading activities. The familiarity of its population with virtual currencies, due to the popularity of mobile games, is another. Japanese exchanges routinely account for a majority of trading volumes in altcoins, such as NEM and Ripple. The Japanese yen is also among the most-traded fiat currencies at crypto exchanges.
The success of crypto retail trading is complemented by institutional interest in them. A consortium of Japanese banks is testing Ripple’s technology for international bank operations. Nomura Group, a financial services consultancy, joined hands with Ledger, a crypto wallet solution, to launch a custodian service for cryptocurrencies last month. The growing popularity of cryptocurrencies can be gauged from the fact that the first fund targeted exclusively at cryptocurrencies was launched in Japan earlier this year. To that extent, it would be easier for Coinbase, which has its own custody solution for institutional clients, to operate in an environment where the cryptocurrency ecosystem has evolved rapidly in the last year.
Regulation has also kept pace with new products. Even as lawmakers in the United States continue to debate the pros and cons of cryptocurrency regulation, Japan has already put in place regulations and licenses to monitor and regulate cryptocurrencies. Apart from legalizing cryptocurrencies as legal tender, the Japanese Financial Services Authority (FSA) swung into action this year after hackers made off with $530 million worth of NEM coins from Coincheck, one of Japan’s biggest crypto exchanges. It directed cryptocurrency exchanges to form a self-regulatory organization to monitor their operations. Cryptocurrency-related businesses are also required to obtain licenses to operate in the country. Binance, a leading cryptocurrency exchange, shifted its offices from Japan to Malta after the license requirements came into effect.
These developments augur well for Coinbase which aims to become the “Google for crypto“. It cannot achieve this ambition without the help of regulation that will weed out bad actors and bring order to an otherwise chaotic ecosystem. “As in other markets, we plan to take a deliberate approach to our rollout in Japan, which means working hand-in-hand with the Japanese FSA to ensure compliance with local laws at every stage,” the exchange wrote in its post announcing its Japanese operations. The breadth of its services will ensure that Coinbase will get a slice of Japan’s growing institutional and retail market.