Leading US cryptocurrency exchange Coinbase has said that tighter scrutiny on the part of regulators in Japan gives Coinbase an advantage entering into the East-Asian market. Despite being traditionally considered a hotbed for cryptocurrency activity, local news outlet Nikkei Asian Review reports that enthusiasm surrounding cryptocurrency in Japan has fallen off as regulatory oversight has increased in the wake of a series of high profile hacking scandals. All eyes are on Coinbase as the exchange’s bid for approval by Japanese regulators is serving to gauge the country’s openness to new players.
Coinbase in Talks With Japan’s Financial Services Authority
Talks on obtaining a license through Japan’s Financial Services Authority are “going well,” said Mike Lempres, chief policy officer at Coinbase. He told the Nikkei Asian Review in a recent interview in Tokyo that Coinbase is “committed to getting it done. It will certainly be in 2019.”
The San-Francisco based company is now home to 20 million accounts worldwide and is reported to have generated $1 billion in revenue last year. Coinbase first announced that it would be attempting to enter into Japan in June of this year.
Being one of the only major cryptocurrency exchanges operating inside of the heavily regulated US market, Coinbase is emphasizing its reputation for being one of the most secure exchanges on the market in talks with Japanese regulators. Lempres said out of the company’s 550 employees, “dozens” are dedicated to security. He further noted that 99 percent of user funds are safely stored offline, with only 1 percent held in “hot wallets”. The small percentage of funds that might be vulnerable to attack are fully insured, he said.
“The Japanese government is more focused on security,” Lempres said. “That is good for us.”
One Potential Problem…
Coinbase’s winning business model, complemented by its exemplary security protocol, should make it a perfect candidate to enter into the Japanese market. However, the company may face one major setback in the event that Japan’s Financial Services Authority (FSA) may require the exchange’s system to be managed in Japan. Nikkei Asian Review reports that while such a move would improve the FSA’s ability to monitor transactions, it could also create additional security risks for Coinbase.
“We have everything built to protect our storage… in the U.S.,” said Lempres. “We won’t do anything to even raise possibility of a hack. It would be hard for us to duplicate what we do in the U.S. today in Japan and other countries.”
Japan’s previously fast-growing crypto industry came to a grinding halt in January of this year when Tokyo-based exchange Coincheck was hacked for $530 million in cryptocurrency. The FSA’s tightening regulation in the wake of the attack caused an exodus of many crypto businesses from the country. Other companies, like Coincheck, were sold to larger corporations. Fear of even greater scrutiny from the FSA is growing among the remaining Japanese crypto companies following the $60 million crypto hack on Osaka-based Tech Bureau virtual-currency exchange Zaif in September.
Nikkei Asian Review reports that this year’s scandals, along with the tightening regulatory scrutiny that has followed, is starting to damage investor interest in cryptocurrencies and initial coin offerings (ICOs). But Coinbase remains optimistic.
“Japan has been an active large market from the very beginning, and has proved resilient as it bounces back from several bad experiences,” Lempres said. “We think there is great demand for a trusted provider of services here.”
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